WASHINGTON – U.S. Senate Committee on Small Business & Entrepreneurship Chair Ben Cardin (D-Md.) today lauded the Biden administration’s announcement that it will extend the 7(a) Community Advantage Pilot Program for an additional 2 years until September 30, 2024. The pilot program was previously set to end in September 2022.
“Capital is the lifeblood of small businesses and for too many minority, women and veteran entrepreneurs, the inability to access capital is what prevents them from pursuing their dreams and ideas,” Senator Cardin said. “Community Advantage has demonstrated over its lifetime that it does a better job of getting capital to underserved small businesses than the traditional 7(a) loan program. I am grateful to the Biden Administration for this extension to give certainty to entrepreneurs counting on the program to secure capital in the coming months and years. Congress must give underserved entrepreneurs even more certainty by passing legislation to make this vital program permanent.”
Last week, Senator Cardin released a staff report on the COVID-19 small business relief programs, including the Paycheck Protection Program (PPP), and found that “the equity-focused policies implemented by Congress and the Biden Administration over the lifetime of PPP resulted in a significant improvement in the number and share of loans that were made to minority-owned, women-owned, and other underserved small businesses.”
The report cited codification of Community Advantage (CA) as an example of a policy that Congress should implement to build on the lessons learned during the implementation of PPP. The program is specifically designed to meet the credit, management, and technical assistance needs of small businesses in underserved markets.
Traditional 7(a) loans provide entrepreneurs with up to $5 million in capital at reasonable rates when they are unable to get credit elsewhere, but unfortunately, the program has long struggled to reach underserved entrepreneurs.
In Fiscal Year 2021, when comparing the two programs, Black business owners received only 3 percent of the total dollars loaned under 7(a) while receiving 15 percent of the CA loan total. Hispanic borrowers received 6 percent of all 7(a) loans that year, and received 15 percent of the dollars loaned under CA. Women entrepreneurs meanwhile received 14 percent of all dollars loaned by 7(a) compared to 30 percent of CA loan dollars.
Senator Cardin has long been a champion for Community Advantage and for policies that will uplift underserved entrepreneurs, and introduced legislation to make the pilot program permanent in 2019, 2020, and 2021.
As a member of the Small Business Task Force that negotiated PPP, Senator Cardin knew, based on the history of 7(a) and Community Advantage, that PPP’s reliance on the 7(a) program’s infrastructure ran the risk of leaving behind minorities, women, and other underserved entrepreneurs. He secured language in the CARES Act that required the SBA to issue guidance to financial institutions participating in PPP to prioritize loans for underserved small businesses.
In April 2020, in response to the Trump Administration’s failure to issue the guidance, Senator Cardin and Senate Democrats secured a $60 billion set-aside for smaller lending institutions participating in PPP, such as credit unions, community banks, community development financial institutions (CDFIs), and minority depository institutions (MDIs) that better reach underserved businesses. In the bipartisan Economic Aid Act passed by Congress in December 2020, Senator Cardin also secured an additional $30 billion set aside for community lenders and $35 billion for borrowers who were unable to apply for an initial PPP loan.
In addition to extending Community Advantage through September 30, 2024, the Biden administration also announced the following improvements to the program:
· Lift the four-year lender moratorium and enable the SBA to grow this important lender network, opening up a critical capital program to more mission-based lenders across the country.
· Increase the maximum loan size, the new expanded number of lenders will be allowed to access the SBA’s 7(a) government-guaranteed loan program at lending levels up to $350,000, which represent an increase over the current levels of $250,000.
· Remove the restrictions that can keep individuals with criminal backgrounds from accessing the Community Advantage program.
· Simplify underwriting and collateral requirements for borrowers and lenders, including increasing the maximum unsecured loan size from $25,000 to $50,000, removing barriers that disproportionally impact underserved borrowers.
· Introduce additional abilities for lenders to make revolvers and lines of credit, interest-only periods, and other loan modifications that meet borrowers where they are to best serve their capital needs.
· Redefine packaging fee guidelines to better enable CDFIs, CDCs, and mission lenders participating in the Community Advantage program to scale and increase volume to underserved communities.