One of the financing tools SCORE counselors have recommended for smaller loans has been the SBA guaranteed loan program, Community Express. Unfortunately the default ratio on loans provided by the several lenders active in this program has been high. There has been on going discussions within the SBA to discontinue Community Express and on April 30, 2011, the program will end.
I suggest any of you considering loans up to $50000 begin the application process immediately through your local SCORE office.
The SBA plans on providing new programming changes to the popular 7(a) program to encourage smaller loans to “under served markets.”. I’m not sure how participating SBA lenders will be enticed into participating in these new programs, since lower loan amounts are not profitable to originate, process or service.
I have attached a copy of the SBA release for your review:
“…SBA and U.S. Department of Commerce studies have shown the importance of lower-dollar loans to small business formation and growth in underserved communities. With that in mind, the two new loan initiatives – Small Loan Advantage and Community Advantage – are aimed at increasing the number of lower-dollar SBA 7(a) loans going to small businesses and entrepreneurs in underserved communities. The agency’s most popular loan product, 7(a) government-guaranteed loans can be used for variety of general business purposes, including working capital and purchases of equipment and real estate.
In conjunction with the implementation of these two new Advantage loan initiatives by March 15, the agency will end its existing Community Express pilot loan program on April 30.
“Over the last two years, we’ve seen lending to all small businesses tighten up, and that tightening has been even greater in traditionally underserved communities, including among minorities, women and in rural areas,” SBA Administrator Karen Mills said. “These new Advantage initiatives are aimed directly at getting more loans into these markets so these small business owners can get the capital they need to start or grow their business and create good paying jobs in local communities across the country.”
Built on what the agency refers to as its “Advantage” platform, both Small Loan Advantage and Community Advantage will offer a streamlined application process for SBA-guaranteed 7(a) loans up to $250,000. These loans will come with the regular 7(a) government guarantee, 85 percent for loans up to $150,000 and 75 percent for those greater than $150,000.
Small Loan Advantage will be available to the 630 financial institutions across the country in the agency’s Preferred Lender Program (PLP). Under PLP, which includes most of the agency’s highest volume lenders, SBA delegates the final credit decisions to lenders.
With Community Advantage, the agency will expand the points of access small business owners have for getting loans by opening SBA’s 7(a) loan program to “mission-focused” financial institutions, including Community Development Financial Institutions, Certified Development Companies and non-profit microlending intermediaries. Community Advantage will leverage the experience these institutions already have in lending to minority, women-owned and start-up companies in economically challenged markets, along with their management and technical assistance expertise, to help make their borrowers successful.
“These two new loan initiatives tackle a couple of factors we know exist when it comes to the challenges small business owners face,” Mills said. “First, to add more incentive for lower-dollar loans in these communities, we are providing a streamlined process for lenders along with the regular 7(a) government guarantee. Second, we are taking steps that will increase the number of places small business owners in underserved communities can go to get loans. And also, with Community Advantage, we are making sure that the additional assistance some borrowers may need through counseling and technical assistance will be available.”