When Maria Contreras-Sweet took over as the Administrator of the Small Business Administration in April, she stressed that improving access to capital for the underserved would be a top priority.
The agency boasts on its web site that it is simplifying the loan application process by using a total credit scoring model that combines an entrepreneur's personal and business credit scores in order to make it "easier and less time-intensive for banks to do business with the SBA." This goal of this model is to ensure that credit-based risk assessments, not socio-economic factors, determine who is deemed creditworthy. Along with this simplification, SBA is eliminating requirements for "time-consuming analyses of a company's cash flow" on small loans under $350,000.
While all of this is admirable, there is still much, much more that the SBA can do to streamline the application process for many of its loan programs. The most obvious would be the acceptance of eSignatures. As a government agency, albeit a very effective one, the SBA gets bogged down in paperwork. Accepting eSignatures instead of photocopies of signed documents would significantly cut downon how longit takes for prospective borrowers to fill out their applications, as well as how much time financial institutions must devote to each request.
Many bankers tell me that the signals from the SBA are mixed: There are lots of announcements about streamlining but not enough is done to make it a reality. We have seen and heard a lot of talk about digitizing the process, yet the agency still wants paper work. There is a difference between a wish list and what is actually happening.
Aspiring entrepreneurs--many of them hard working immigrants with little or no credit history--had a hard time securing capital during the post-recession "credit crunch." Banks became much too risk-averse in their lending, which put small business owners with poor credit histories in a bind for cash. They wound up obtaining financing through high interest alternative lenders who charge interest rates of 20 to 50 percent. Many times, the business owners could not grow their companies because they were strangled by the high- interestdebt hanging around their necks.
Fortunately, as the economy improved, so did the odds of securing SBA loans from traditional banks. The SBA waived fees and provided 75 to 90 percent guarantees on the loans to make it more attractive for banks to approve them.
The biggest downside to SBA loans, which generally have lower interest rates than other sources of small business financing, is that they take a long time to process. An SBA loan could take weeks to go through, while some technologically savvy alternative lenders could turn around approvals within a day or so. The SBA must learn from this.
Maria Contreras-Sweet, who came to this country as a small child from Mexico unable to speak a word of English, knows how vital small businesses are to building communities and the U.S. economy overall. Access to capital helps build a strong and lasting middle class. This must be a continued priority. Technology can help speed the process of small business lending and speed entrepreneurs' progress downthe path to pursuing the American Dream of self-sufficiency.