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John MillerActing Associate Administrator, Office of Capital AccessSmall Business Administration
FY 16-17: Agency Priority Goal
Strengthen and expand the network of lenders offering SBA products
Priority Goal
Goal Overview
Providing access to capital has been one of the SBA’s critical strategies in meeting its objective to drive business formation, job growth, and economic expansion particularly in underserved markets since the Agency’s creation in 1953. By providing loan guarantees to reduce lenders’ loss exposure, the SBA provides an important credit lifeline to small businesses, especially startup businesses and businesses owned by women, minorities, veterans and other underserved groups that often cannot easily obtain credit in the conventional market. SBA loan programs are necessary to ensure that small businesses are not only surviving but also leading the way toward US economic expansion and growth.
The 7(a) Loan program is the federal government’s primary small business loan program, assisting small businesses to obtain financing when they do not qualify for or otherwise have access to traditional credit. The SBA guarantees a portion of each loan (typically 50 to 90%) that participating lenders make by using the adjusted credit standards of the 7(a) loan program.
SBA's FY 2014-2015 Priority Goal to increase new and returning 7(a) lenders has reduced the decline from FY 2012 to FY 2014. SBA will continue to support small business access to capital by increasing the number of lenders participating in the flagship 7(a) loan program (including the Community Advantage pilot program). Lender participation is essential to growth in the quantity of loans approved and small businesses assisted. Attaining a high volume of lender participation will create a consistent pipeline of SBA loans to small businesses.
This Priority Goal directly supports SBA’s Strategic Objective 1.1 – Expand access to capital through SBA’s extensive lending network. Access to capital is critical to the long-term success of America’s small businesses. The top priority at the SBA is to get lending flowing to small businesses.
Key barriers and challenges:
- Economic Trends; micro- and macro-economic that impact whether banks want to provide SBA-backed loans such as:
- Lender may not have the technology in place to support migration to SBA systems
- Some industries may have a high default rate and a risk that would not allow a lender to underwrite a SBA backed loan
- Lender located in an area where some industries are effected by geographic factors that would make a risk (for example, Northeast Area has a big fishing industry that depends on weather, availability of product, regulations, etc.)
- Bank mergers impact the number of lending partners providing 7(a) loan
- Program awareness of SBA products and services and a shrinking workforce in field offices which provide training
Strategies
Two barriers to entering the SBA lending program are program complexities and program fees. Program complexities include government regulations, standard operating procedures, and forms. By focusing on continuous improvement to the loan programs and reducing borrower and lender fees, SBA will become more attractive to new and returning lenders. These improvements will include converting paper loan files into an electronic format which will significantly increase efficiency in the center operations, save on shipping and handling costs, and reduce the risk of physical file shipments. SBA will continue evaluating program regulations and standard operating procedures in order to simplify participation for lending partners in the 7(a) program. SBA will work with trade groups, field offices, technology partners, and lenders to communicate these improvements. Increased efficiency and improved loan application submission experience are essential to attracting active lending partners.
Implementation Strategies:
- Continue improving the SBA loan programs and work with trade groups, field offices, technology partners, and lenders to communicate improvements
- Utilize trade groups, such as National Association of Development Companies (NADCO) and National Association of Government Guaranteed Lenders (NAGGL) to communicate improvements to the loan programs and awareness of SBA products
- Work with existing and new lenders to ensure they have the tools and resources needed to increase the volume of SBA loans
- Provide training to lenders on new features in updated Standard Operating Procedures (SOPs)
- Provide training and awareness outreach to lenders, via field operations, to ensure streamlined and efficient operations
- Assist lenders interested in joining SBA’s lending network
Progress Update
In the fourth quarter of FY 2016, SBA had 2,045 7(a) lenders participate in the program, slightly below pace, achieving 85% of the goal. As of Q4, SBA has approved 64,074 7(a) loans for $24.1 billion. Total number of 7(a) loans approved YTD is greater than the Q4 FY 2015 results YTD (1.0%) and greater than the dollar of loans approved (2.3%). The SBA continues to work toward its Priority Goal of adding new lenders to its network. SBA did not meet its FY 2016 target largely due to continued bank mergers. This is evidenced by the fact that SBA alone approved the transfer of over 60 portfolios due to mergers in FY 2016. However, the program increased lending volume by $544 million, leading to a record year of approvals in both volume and dollars. In addition, significant progress continued to be made streamlining and simplifying the loan application process, decreasing processing time, and lowering costs to participants.
The SBA lending community has been very responsive to SBA’s strategy of fee relief and loan program improvement. Actions taken to strengthen and expand the network of 7(a) lenders include:
- Small Dollar Loan Fee Relief
- Guaranty and servicing fees have been waived for all loans less than $150,000 through the end of FY 2016
- Veterans Fee Relief
- Guaranty and servicing fees have been waived for all SBAEXP loans to veterans less than $350,000 through the end of FY 2016
- 50% of the upfront guaranty fees have been waived for all other loans to veterans through the end of FY16
- Community Advantage Pilot Program (allows non-profit mission-based lenders to access the 7(a) program)
- Exceeded $300 Million in loan approvals in the Community Advantage (CA) Pilot Program, exceeding YTD loan totals by 18.8% compared to previous year, with 82% of CA loans going to one or more underserved small businesses this year
- Released Program Guide for Community Advantage, which streamlined program participation and extended the program until 2020
- Revised credit scoring models allowing greater lending opportunities
- Published Final Rule on Affiliation
Next Steps
- SBA One
- Continue to recruit lenders to use SBA’s new, end-to-end loan origination platform SBA One
- Continue to rollout SBA One with new releases and major “fixes” to persuade lenders to return that stopped doing business with SBA
- Release new products and tools for lenders
- Policy
- Reorganize and simplify SOP 50 10 5 (loan approval processes)
- Establish the Community Advantage Pilot Program as permanent
- Establish streamlined process in lending to franchises
- Outreach and Training
- Continue improving SBA loan programs and work with field offices, technology partners, and lenders to communicate improvements
- Utilize trade groups, such as National Association of Development Companies (NADCO) and National Association of Government Guaranteed Lenders (NAGGL) to communicate improvements to the loan programs and awareness of SBA products
- Provide training and awareness outreach to lenders, via field operations, to ensure streamlined and efficient operations
Contributing Programs & Other Factors
SBA will provide training to lenders, via field operations, on new features in SBA's updated stand operating procedures and streamline opportunities within the loan programs to ensure efficient operations. Trade groups, such as National Association of Development Companies (NADCO) and National Association of Government Guaranteed Lenders (NAGGL), will also play a role in achieving Agency objectives.
The Agency will engage Field Offices, trade groups, and lenders to gain feedback on what is working, what is not working, what is needed, and what is desired; action plans will be developed as necessary. Feedback and recommendations from these outlets will provide SBA a robust view of the needs of the small business lending arena.
The SBA programs that contribute to this Agency Priority Goal are: 7(a) Loan Guarantees and Secondary Market Guarantee.
Strategic Objectives
Strategic Objective:
Statement:
Expand access to capital through SBA's extensive lending network
Description:
Access to capital is critical to the long-term success of America’s small businesses. The top priority at the SBA is to get lending flowing to small businesses. As the economy continues to improve, the SBA is working to ensure that remaining gaps in the commercial markets are filled and that small businesses across the country are well positioned to take advantage of opportunities. The SBA also continues to streamline and simplify its loan programs to make its products more attractive to lenders and borrowers.
Agency Priority Goals
Statement: By September 30, 2017, expand access to capital for small businesses by increasing the number of lenders in SBA's 7(a) loan program from 2,244 (FY 2014) to 2,500.
Description: Providing access to capital has been one of the SBA’s critical strategies in meeting its objective to drive business formation, job growth, and economic expansion particularly in underserved markets since the Agency’s creation in 1953. By providing loan guarantees to reduce lenders’ loss exposure, the SBA provides an important credit lifeline to small businesses, especially startup businesses and businesses owned by women, minorities, veterans and other underserved groups that often cannot easily obtain credit in the conventional market. SBA loan programs are necessary to ensure that small businesses are not only surviving but also leading the way toward US economic expansion and growth. The 7(a) Loan program is the federal government’s primary small business loan program, assisting small businesses to obtain financing when they do not qualify for or otherwise have access to traditional credit. The SBA guarantees a portion of each loan (typically 50 to 90%) that participating lenders make by using the adjusted credit standards of the 7(a) loan program. SBA's FY 2014-2015 Priority Goal to increase new and returning 7(a) lenders has reduced the decline from FY 2012 to FY 2014. SBA will continue to support small business access to capital by increasing the number of lenders participating in the flagship 7(a) loan program (including the Community Advantage pilot program). Lender participation is essential to growth in the quantity of loans approved and small businesses assisted. Attaining a high volume of lender participation will create a consistent pipeline of SBA loans to small businesses. This Priority Goal directly supports SBA’s Strategic Objective 1.1 – Expand access to capital through SBA’s extensive lending network. Access to capital is critical to the long-term success of America’s small businesses. The top priority at the SBA is to get lending flowing to small businesses. Key barriers and challenges:
Statement: Expand access to capital by adding 325 new and returning lenders to SBA’s flagship 7(a) program each fiscal year in FY2014-2015.
Description: Providing access to capital has been one of the SBA’s critical strategies in meeting its objective to drive business formation, job growth and economic expansion particularly in underserved markets since the agency was created in 1953. By providing loan guarantees to reduce lenders’ loss exposure, the SBA provides an important credit lifeline to small businesses, especially startup businesses and businesses owned by women, minorities, veterans and other underserved groups who often cannot easily obtain credit in the conventional market. In the current economic conditions, SBA loan programs become even more crucial for ensuring that small businesses are not only surviving but also leading the way toward economic recovery and growth, as they have done time-and-time again throughout U.S. history. SBA will increase small business access to capital by increasing the number of new or returning lenders in the fiscal year for the flagship 7(a) program (including the Community Advantage pilot program). New and returning lenders are a major component of SBA’s lending portfolio and are essential to growth in the quantity of loans approved and small businesses assisted. Each new or returning lender will expand SBA’s footprint and increase small business access to capital. Attaining a high volume of new and returning lenders from one fiscal year to the next will create a consistent pipeline of SBA loans into the hands of small business. There are barriers and challenges to the SBA in achieving its priority goals:
