SBA Announces Streamlined Lender Procedures to Increase Capital Access for Small Businesses

Following the recent finalization of two new rules aimed at closing gaps in capital access for America’s small business owners, Administrator Isabella Casillas Guzman, head of the U.S. Small Business Administration (SBA) and the voice for America’s 33 million small businesses in President Biden’s Cabinet has announced streamlined lender procedures and other details on implementation.

“The Biden-Harris Administration recognizes that small businesses are the drivers of our economy, and that to participate in the opportunities created by the President’s Invest in America agenda, that they need capital to start, grow, and be resilient,” said Administrator Guzman. “The ongoing modernization of SBA’s loan programs will help ensure more borrowers can get funded through a broader network of lenders so they can help build a strengthened American economy that innovates, manufactures and provides the products and services that make our lives better across Main Street.”

President Biden’s Investing in America agenda has paved the way for historic economic progress – over 12.7 million jobs created and a small business boom of 10.5 million new business applications in 2021 and 2022. At the same time, SBA recognizes that small businesses, particularly those owned by individuals in underserved communities who are highly entrepreneurial, still face longstanding barriers in accessing capital needed to start or grow their businesses.

To that end, building on the newly finalized rules, SBA announced publicly, for the first time, its plans to:

• Streamline eligibility determination of SBA-backed loans. To reduce the burden on SBA lenders and streamline operations, SBA will bring eligibility determination on SBA loans in-house through new technology starting August 1, 2023, which will ensure more lenders can focus on their customers and expand capacity to increase lending, especially small-dollar lending.
• Add new fraud review on all loans. Building on President Biden’s commitment to root out fraud, the SBA will use advanced data analytics, third party data checks, and artificial intelligence tools for fraud review on all loans in the 7(a) and 504 Loan Programs prior to approval, starting August 1, 2023. To date, loan approval in these programs has largely been delegated to lenders, who approve loans based on SBA rules but without the agency checking for indicators of fraud upfront.

“These new changes are an important step toward ensuring that more small business owners have the opportunity to grow and succeed,” said Associate Administrator Patrick Kelley. “Building on controls deployed under the Biden-Harris Administration, SBA will safeguard taxpayer dollars, protect the integrity of our programs, and simplify the application process for both lenders and small business owners – a win-win for everyone.”

This week, also as part of the loan programs’ modernization, the SBA published:

• New, simplified guidelines for lenders on how to make SBA loans, as part of a new Standard Operating Procedure (SOP). Under the new rules, SBA lenders will now be able to use their existing credit policies for similarly sized non-SBA loans up to $500,000. This will expand the number of credit-worthy business owners who can access SBA loans, especially small-dollar loans.
• New procedures cutting red tape, as outlined in a Procedural Notice removing the requirement for a Loan Authorization, a set of forms that has become duplicative and unnecessary for lenders.
• Details simplifying and clarifying affiliation standards to ease the burden on small business owners and lenders, and make clear who qualifies for an SBA loan, as part of a new Informational Notice. 
• SBA will continue to post updates in the coming days, including:
• A notice to accept new lender applications in the Small Business Lending Company (SBLC) program. This will allow the existing program to provide loans to an expanded number of small businesses. SBA will accept applications beginning June 1 until July 31. SBA will name up to three new SBLCs.
• Additional, simplified lender guidelines, including on lender participation, servicing, and liquidation.

These announcements build on SBA’s May 1 informational notice outlining steps for Community Advantage Pilot Program lenders to transition to a new, Community Advantage SBLC license. This change provides permanency in SBA lending for mission-driven organizations like Community Development Financial Institutions, or CDFIs, which have a track record of filling capital gaps in underserved communities.

The 7(a) and 504 loan programs are the most popular loan programs offered by SBA. The 7(a) Loan Program provides flexible financing options for a variety of business purposes, including capital and equipment purchases. The 504 Loan Program allows small businesses to finance fixed assets such as real estate, in addition to equipment. Both programs are designed to meet the needs of small business owners with low-cost and long-term capital. In Fiscal Year 2022, the two programs provided a combined $35 billion in capital to 57,000 American small businesses.