New SBA Rules to Empower Small Business Growth in a Tough Economy

To increase access to capital for small businesses, the Biden-Harris administration announces new developments and improvements to the loan program modernization. As part of the rulemaking completed in April, program improvements would boost fraud prevention and promote access to finance for small businesses, especially lower loans amounts.

Last Month, 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, announced several new business initiatives. They include streamlined lender procedures and other details on implementation following the recent finalization of two new rules aimed at closing gaps in capital access for America's small business owners.

Administrator Guzman stated that the Biden-Harris administration "recognizes that small businesses are the engines of our economy and that they need capital to start, grow, and be resilient in order to participate in the opportunities created by the President's Invest in America agenda." The ongoing modernization of the SBA's loan programs will "ensure that 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 goods and services that make our lives better across Main Street."

With approximately 12.7 million jobs created and 10.5 million new business applications in 2021 and 2022, President Biden's Investing in America initiative has paved the road for historic economic development. At the same time, SBA acknowledges there are still persistent impediments to getting the money needed to establish or expand small enterprises particularly high skilled entrepreneurs in underserved communities.

SBA made its first public announcement May 11 of plans to implement the recently enacted guidelines 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.

According to Associate Administrator Patrick Kelley, "these new changes are a crucial step toward ensuring that more small business owners have the opportunity to grow and succeed." "SBA will safeguard taxpayer funds, protect the integrity of our programs, and simplify the application process for both lenders and small business owners - a win-win for everyone," according to the SBA.

According to Associate Administrator Patrick Kelley, "these new changes are a crucial step toward ensuring that more small business owners have the opportunity to grow and succeed." "SBA will safeguard taxpayer funds, protect the integrity of our programs, and simplify the application process for both lenders and small business owners - a win-win for everyone," according to the SBA.

As part of the revamping of the lending programs, the SBA also released the following this week:

• 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.

The SBA published an explanatory notice on May 1 describing the steps for lenders participating in the Community Advantage Pilot Program to switch to a new Community Advantage SBLC license. These developments build on that notice. Through this modification, mission-driven organizations like Community Development Financial Institutions, or CDFIs, which have a history of bridging capital shortages in underserved communities, will have permanent access to SBA funding.

SBA’s most popular lending options are the 7(a) and 504 loan programs. The 7(a) Loan Program offers flexible financing choices for a range of business needs, such as the purchase of capital and equipment. Small firms can finance fixed assets like real estate in addition to equipment through the 504 Loan Program. The objectives of these initiatives are to provide long-term, low-cost funding to small business owners. A total of $35 billion in funding was made available to 57,000 American small enterprises through the two programs in fiscal year 2022.