The rise of SBA lending, but many of the smallest companies miss it – News Couple
ENTREPRENEUR

The rise of SBA lending, but many of the smallest companies miss it


New data from the US Small Business Administration shows that the agency provided $44.8 billion in conventional loans to small businesses in fiscal year 2021, in addition to $1.1 trillion in COVID-related financing.

However, there is still a funding gap for very small businesses seeking smaller loans. In fiscal year 2021, $71.8 billion in microcredit financing went to 4,400 small businesses, 41% of which went to entrepreneurs in underserved communities, including black and Hispanic-owned small businesses, an SBA press release reports.

However, the lending was done against the background of declining financing. “Over the past five years, loans to the smallest borrowers with a 7(a) loan backed by SBA, Express, and Community Advantage have decreased by more than 45%,” the Small Business Administration noted in a press release.

The statement noted that this decline is “not unique” to Small Business Administration’s loan portfolios. “Federal Deposit Insurance Corporation (FDIC) data on small business lending by regulated banks shows an overall decrease of 3% (translating to 600,000 loans) in the proportion of loans under $100,000,” the statement says. “This lack of small dollar appetite from lenders had disproportionate effects on minority business owners. Black non-Hispanic companies and companies with $100,000 or less income were only half as likely as white non-Hispanic companies Hispanic assets for bank money (23%, 24%), and Latino-owned businesses were slightly less (34%).

Changing this ongoing trend can be difficult. SBA Director Isabella Casillas Guzmán has committed to filling the gaps in access to capital for the smallest companies and those run by entrepreneurs in underserved demographics and calls it the “North Star.”

“While progress has been made, our data also tells a deeper story: historical inequality in access to capital persists, and we must do more to lower entry barriers to opportunity for all of our entrepreneurs,” she said in the statement. “We will continue to build on our impact programs to cater to small businesses wherever they are and connect them with the resources needed to thrive.”

Meanwhile, lending to small businesses seeking larger loans has accelerated since the pandemic. The SBA said that in fiscal year 2021, the SBA backed $36.5 billion in 7(a) loans, generally used for working capital. Minority business owners received $11 million in loans. Women-owned businesses borrowed nearly $5 billion, and veterans-owned businesses borrowed $1.2 billion.

When it comes to 504 loans, which are often used on real estate, equipment, and machinery, the SBA has backed 9,600 loans worth more than $8.2 billion, “a fully overburdened funding authority for the first time in the program’s history.” Of these loans, administered through approved development companies (CDCs), minority businesses received nearly $1.88 billion in financing, and women-owned businesses borrowed more than $172 million.

If the SBA can provide more access to capital to all entrepreneurs in the coming months, it will undoubtedly have a ripple effect among the lending community. This could make a huge difference to the many small businesses that need financing now after months of challenges associated with the pandemic.



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