In 2014, the Obama Administration set out to solve the problem of getting banks to open up and lend smaller loans to small business. Examining the data from 2007 to 2009, there was a noticeable decline in the loans guaranteed under the general business or Section 7(a) loan program. Even in the post melt-down economy, all other SBA loan programs had recovered, but the 7(a) program remained stagnant, and constituted a very small percentage of the agency’s overall loan portfolio. The SBA put forth various reasons for the decline, the biggest of which was that the program under its original incarnation, S.B.A. Express, relied too much on personal credit than on business fundamentals when approving a loan application.
To address this, the Small Loan Advantage program utilizes the S.B.A.’s own credit scoring model for making the initial decision on borrower eligibility. The paperwork involved has also been greatly reduced, thereby reducing the processing time for these loans by as much 60 percent according to S.B.A. press secretary Emily Cain.. By expediting the process further reducing the participating bank’s cost for processing the application, the administration hoped to spur more interest for banks to make the smaller loans under the 7(a) program.
It is our goal to make this innovative program available to all that qualify. In the private sector, there are many types of loan programs for businesses. These programs are often set at extremely high interest rates at a short term. In some cases, businesses are required to make payments daily through an ACH withdrawal from their business checking account. These loans have become popular because of the limited qualification and documentation requirements, as well as the speed with which funds are made available to the business. The Small Loan Advantage program can rival that speed, offer incredibly reduced rates of interest over years as opposed to months and with the changes made, it can utilize the same documentation used by the private sector when making a credit decision.
Preliminary qualification is within minutes and upon application submission, a credit decision is within 24 hours. Loan closing and funding is within 7 business days.