Small Business Administration Announces Changes to Loan Underwriting Process Desgined to Encourage Lending to Small Businesses
July 7, 2014 - Provided by the Mississippi District Office of the SBA
Getting More Loans Into the Hands of the Underserved
In an effort to streamline and simplify our loan application process, we’re streamlining our underwriting by making a total credit scoring model we’ve been testing and refining for over a decade available to all of our lending partners on loans of $350,000 or less. These changes will go into effect in the month of July.
The SBA total credit score combines an entrepreneur's personal and business credit scores and makes it easier and less time-intensive for banks to do business with the SBA. This model is cost-reducing and credit-based. It ensures that risk characteristics – not socio-economic factors – determine who is deemed creditworthy.
Along with this simplification, we are eliminating requirements for time-consuming analyses of a company's cash flow on small loans under $350,000, a step that can delay loan decisions.
Additionally, at the beginning of this fiscal year in October, we set fees to zero on loans of $150,000 or less, another way to reduce the costs for lenders of making small-dollar loans. Why does this matter? Because often times, the smaller or newer the business, the smaller the loan. And as these businesses grow, they will come back for additional loans, creating jobs along the way. So encouraging lenders to make more small-dollar loans is good for the economy, it’s good for businesses, and it’s good for our communities.
These changes make sense. They are another step in our efforts to modernize our lending process and bring it up to pace with the high-tech era we live in. They will make it easier and less time-intensive for banks to do business with the SBA. We’re making these changes knowing that it will simplify and streamline the lending process, which will incentivize banks to make more small-dollar loans in order to get more loans into the hands of traditionally-underserved entrepreneurs.