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SBA Lending Climbs, But Many Of The Smallest Businesses Miss Out

New data from the U.S. Small Business Administration shows that the agency delivered a record $44.8 billion worth of traditional loans to small businesses in fiscal 2021, in addition to $1.1 trillion in COVID-related funding. 

However, a funding gap persists for very small businesses seeking smaller loans. In fiscal 2021, $71.8 billion in microloan funding went to 4,400 small businesses, with 41% going to entrepreneurs in underserved communities, including Black-owned and Hispanic-owned small businesses, an SBA press release reported.

However, the lending took place against a backdrop of declining funding.“Over the past five years, loans issued to the smallest borrowers through the SBA-backed 7(a) loan, Express, and Community Advantage decreased by over 45%,” the SBA noted in a press release. 

That decline was “not unique” to SBA loan portfolios, the release noted. “Federal Deposit Insurance Corporation (FDIC) data on commercial small business lending by regulated banks shows an overall 3% decline (translating to 600,000 loans) in the proportion of loans under $100,000,” the release says. “This lack of small-dollar appetite from lenders has led to disproportionate impacts on minority business owners. Firms with non-Hispanic Black ownership and firms with $100,000 or less in revenues were only half as likely as firms with non-Hispanic white ownership to obtain bank funds (23%, 24%), and Latino-owned firms were slightly lower (34%).”

Turning this persistent trend around could be challenging. SBA Administrator Isabella Casillas Guzman has committed to closing gaps in access to capital for the smallest businesses and those run by entrepreneurs in underserved demographics calling this her “North Star.” 

“While progress has been made, our data also tells a deeper story: historic inequities in accessing capital persist, and we must do more to lower the barriers of entry to opportunity for all our entrepreneurs,” she said in the release. “We will continue to build on our impactful programs to meet small businesses where they are and connect them with the resources needed to thrive.”

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

When it came to 504 loans, which are often used for real estate, equipment and machinery, the SBA backed 9,600 loans worth more than $8.2 billion,“fully exhausting funding authority for the first time in the program’s history.” Among these loans, administered through Certified Development Companies (CDCs), minority businesses received nearly $1.88 billion in funding and women-owned firms borrowed more than $172 million. 

If the SBA can bring more access to capital to all entrepreneurs in the months to come, it will no doubt have a ripple effect among the lending community. That could make a big difference for the many micro-businesses that need funding right now after months of pandemic-related challenges.

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