Testimony of Robert Villarreal, Momentus Capital — Senate Small Business Committee, December 14, 2022
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- Testimony of Robert Villarreal, Momentus Capital — Senate Small Business Committee, December 14, 2022
Summary
Written testimony of Robert Villarreal, Chief External Affairs Officer of Momentus Capital and CDC Small Business Finance, submitted to the Senate Committee on Small Business & Entrepreneurship on December 14, 2022 for a hearing on improving access to capital in underserved communities. Speaking also for the Mission Lenders Working Group, he reviews the origins of the SBA Community Advantage Pilot Program, launched February 15, 2011, and its 60% Target Market lending requirement. The testimony reports that SBA has approved $1,050,734,400 in CA loans to 7,673 businesses and compares CA and 7(a) lending by borrower group. It describes 2022 program reforms, including raising the maximum loan size from $250,000 to $350,000, and supports the Community Advantage Loan Program Permanency Act of 2022. An attached timeline dated October 2022 traces program changes.
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Testimony of
Robert Villarreal
Chief External Affairs Officer
Momentus Capital
CDC Small Business Finance
Submitted to
Senate Committee on Small Business & Entrepreneurship
December 14, 2022
“Improving Access to Capital in Underserved Communities: The Community Advantage
Program, Microloans and other SBA Initiatives”
Chairman Cardin, Ranking Member Paul, and Members of the Committee, I am honored to
testify before you today on behalf of Momentus Capital and CDC Small Business Finance
(CDCSBF) and the Mission Lenders Working Group. I want to thank the committee for
convening this hearing to discuss improving access to capital in underserved communities.
CDCSBF is part of the Momentus Capital family of organizations. Momentus Capital is a
mission-driven financial services firm that puts all of its resources into marshaling capital to
support the vision communities have for themselves. CDCSBF is also the leading mission-
based, SBA lender in the nation. For the federal fiscal year that just ended on September
30, 2022, CDCSBF was once again the number one SBA 504 lender (dollars) and number
one Community Advantage lender for both units and dollars.
Over its 44-year history CDCSBF has provided over $22 billion in commercial real estate and
small business loans, creating/retaining over 240,000 jobs.
I am also representing the Mission Lenders Working Group (MLWG), which I am a founding
member of and which advocates and provides a voice for SBA Community Advantage
Lenders. The Mission Lenders Working Group is a national network of SBA-certified
Community Advantage (CA) non-traditional small business lenders including SBA Certified
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Development Companies (CDCs) and Treasury-certified Community Development Financial
Institutions (CDFIs) located in urban and rural areas across the country. Members see their
organizations as a coalition and stewards of the SBA Community Advantage Loan Guaranty
Pilot program with a shared commitment to financing, supporting, and sustaining
underserved and underbanked small businesses.
In these written comments I will review:
● The origins and mission of the Community Advantage (CA) Pilot Program.
● The impacts and successes of the CA Program as well as some of the challenges
faced by participating CA lenders (industry-wide and from the perspective of
CDCSBF as a CA lender).
● How the Community Advantage Loan Program Permanency Act of 2022,
sponsored by Chairman Cardin, would strengthen the CA program; and
● Finally, I’d like to share some thoughts and recommendations regarding the
proposed rule released by the SBA on the Small Business Lending Companies
(SBLC)
Background on the Community Advantage (CA)Loan Guarantee Pilot: Its Origin
and Mission
The SBA Community Advantage Pilot Program was launched on February 15, 2011. For the
first time, the SBA’s flagship 7(a) program expanded the points of access that small
business owners had for getting loans from mission-focused financial institutions with
experience lending to minority, women-owned, and start-up companies in economically
challenged markets along with their management and technical assistance expertise, to help
make their borrowers successful. 1 This was an acknowledgment that the lending industry
needed to do a better job in providing small-dollar loans to businesses in underserved
communities, or those businesses classified as “emerging markets.”
The program’s goals, per the initial Community Advantage Participant Guide issued by the
SBA, were:
● To increase access to credit for small businesses in underserved markets;
● To expand points of access to SBA 7(a) loans by engaging non-traditional mission
lenders with experience working in underserved markets;
● To provide management and technical assistance to small businesses as needed; and
● To manage portfolio risk by utilizing the underwriting knowledge of mission lenders
with successful track records lending in underserved markets.
As noted above, the critical component of the program was to expand the 7(a) program to
mission lenders. The SBA defined mission lenders as falling into one of three groups: SBA-
certified development companies (CDCs); SBA microlenders; and Community Development
Financial Institutions (CDFIs). The Administration understood that these lenders were best
positioned to meet the capital needs of the underserved business populations not being met
by traditional SBA lenders. Mission lenders have a deep knowledge of their communities,
1
SBA, “Community Advantage Pilot Program,” 76 Federal Register 9627, February 18, 2011; and SBA, “SBA Announces New Initiatives Aimed at
Increasing Lending in Underserved Communities,” December 15, 2010, at https://www.sba.gov/content/sba-announces-new-initiatives-aimed-
increasing-lending-underserved-communities https://portage.life/print/?article=4112
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are accountable to their communities via resident representation on their board of directors,
and, as an explicit purpose and mission, assist small businesses that are located in
underserved areas or are owned by women and minority entrepreneurs.
To ensure that the underserved markets were met, SBA required that CA lenders make 60%
of their loans to a designated Target Market. The Target Markets consist of:
● Businesses located in Low-to-Moderate Income (LMI) communities
● Businesses where more than 50% of the full-time workforce is low-income or reside
in LMI census tracts
● Empowerment Zones and Enterprise Communities
● HUB Zones & Promise Zones
● New “start-up businesses (Firms less than two years in business)
● Businesses eligible for SBA Veteran’s Advantage
● Business located in Opportunity Zones (added 10/1/2018)
● Rural Areas ((added 10/1/2018)
Accordingly, the CA program offers access to 7(a) guaranteed lending to these institutions,
which in turn increases access points to the 7(a) program for small firms who would
struggle to access an SB loan from a bank.
Since the launch of the program, there have been additional changes, which are highlighted
in the attachment called “SBA Community Advantage Pilot Program Timeline” (please see
attachment). Highlights include program extensions in November 2012, December 2015,
and April 2022. Throughout the first several months of 2022, SBA worked with the industry
in revising the CA Participant Guide, which included increasing the maximum loan amount
from $250,000 to $350,000 and streamlining lending requirements. We thank and applaud
SBA for making these improvements to the program.
Impacts and Successes of the Community Advantage Program
Since the CA pilot launched, the SBA has approved a total of $1,050,734,400 in CA loans to
7,673 businesses with an average loan size of $139,000.
Both CA and conventional 7(a) lending fell during the pandemic as lenders shifted their
focus to processing PPP loans. In FY 2020, SBA lending started to pick up with CA lenders
continuing to target a significant portion of their lending to underserved markets. In FY
2022, 717 CA loans were approved for an average loan size of $158,995, representing an
increase in CA loan approval of 21 percent.
In FY 2022, 7(a) lenders made 47,678 loans through the program totaling over $25.6
billion, for an average loan size of $538,903. On April 27, 2022, Administrator Isabella
Guzman’s testimony before the Committee mentioned the importance of small-dollar
lending, and the 7(a) program data revealed a gap in the program’s coverage. For instance,
the number of 7(a) loans of $150,000 or less declined by almost 52 percent since FY 2016,
and the number of 7(a) loans of $50,000 or less declined by nearly 58 percent. In turn, the
average 7(a) loan size increased steadily since FY 2016, increasing by more than 87
percent. 2
2
Memo from U.S. House of Representatives Chairwoman Nydia Velazquez on the Full Committee Hybrid Hearing: “SBA
Management Review: Office of Capital Access” https://smallbusiness.house.gov/uploadedfiles/05-18-22_hearing_memo.pdf
Page | 3
2016 64,074 $ 24,130,000,000 2016 988 $ 123,020,000
Resource: SBA 7(a) Connect Quarterly Update, October 11, 2022
The Mission Lenders Working Group analyzed the SBA‘s FOIA data on the 7(a) Program and
CA from FY2016-FY2022 The comparative data charts are below. While 7(a) lenders have
steadily increased their lending to minority and women-owned businesses, CA lenders
outpace lending to historically underserved communities. CA lenders particularly lend more
to Black entrepreneurs, Hispanic entrepreneurs, and women-owned and startup businesses
based on the FOIA Data for Fiscal Years 2012-2022. Of note, in the FY2020 Congressional
Budget Justification, SBA recognized that the CA program “reached significantly more
women and minorities than the traditional 7(a) loan program. 3
Over the last ten years, experienced CDCs, CDFIs, and Microlenders participating in the CA
pilot have demonstrated their expertise, skill, and capacity as lenders and their ability to
finance and support businesses that traditional lenders, including conventional 7(a) lenders,
are unable to serve. Compared to 7(a) financing, CA mission lenders have consistently and
significantly outpaced lending to Black, Hispanic, and women-owned businesses as well as
Veteran-owned businesses and start-ups.
3
U.S. Small Bus. Admin., FY2020 Congressional Budget Justification and FY2018 Annual Performance Report (2019).
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SBA Backed Lending to Black-Owned Businesses –
Approved 7(a) Lending vs Approved CA Lending – FY 16-FY 22
SBA Backed Lending to Hispanic-Owned Businesses –
Approved 7(a) Lending vs Approved CA lending –FY 16-FY 22
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SBA Backed Lending to Women-Owned Businesses (>50%)
Approved 7(a) Lending vs Approved CA lending – FY 16-FY 22
SBA Backed Lending to Startup Businesses –
Approved 7(a) Lending vs Approved CA lending – FY 16-FY 22
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SBA Backed Lending to Veteran-Owned Businesses–
Approved 7(a) Lending vs Approved CA lending – FY 16-FY 22
SBA Backed Lending to Rural Businesses 4–
Approved 7(a) Lending vs Approved CA lending – FY 16-FY 22
4
On October 1, 2018 the SBA expanded the underserved market definitionfor CA to include rural areas.
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Additionally, analyzing the FOIA data from FY2016-FY2022 in a given year, the majority of
7(a) lenders make just twenty 7(a) loans or fewer.
FY 2018
● 761 lenders (51%) made 5 7(a) loans or fewer.
● 972 lenders (65%) made 10 7(a) loans or fewer.
● 1164 lenders (78%) made 20 7(a) loans or fewer.
FY 2019
● 766 lenders (53%) made 5 7(a) loans or fewer.
● 963 lenders (67%) made 10 7(a) loans or fewer.
● 1150 lenders (80%) made 20 7(a) loans or fewer.
We share the above information to illustrate that while some in the administration have
been critical that CA lenders are doing too few loans, the data indicates that two-thirds of
7(a) lenders make less than ten loans per year. Finally, we want to remind congressional
leaders and SBA that mission-lenders were critical partners during the pandemic, in
deploying PPP loans and providing technical assistance to America’s small businesses.
CDCSBF funded nearly 6,000 PPP loans on its own, for approximately $275 million. Our
median loan was approximately $20,000 and we provided thousands of hours of free
technical assistance. One small business client wrote to us:
This is the best I have been treated since I initially started this process
with the banks when it all began. I am grateful for the chance to work
with all of you. Even if there are no additional funds, at least I feel like
I was seen.
At the end of the day that is what differentiates us as mission lenders; we SEE the clients
that traditional lenders overlook and under value.
CDC Small Business Finance’s Impacts as a CA Lender
CDC Small Business Finance was the second approved lender in the country, following
Kentucky Highlands, when the program was launched and also had the first CA loan
approved in the program.
Since the launch of the CA pilot in 2011 CDC Small Business has been “all in” as a CA lender
and advocate for the program. Through the conclusion of the last fiscal year-end
(9/30/2022), CDCSBF had funded 1,277 CA loans for $178 million in loans to underserved
businesses. These CA loans resulted in over 4,800 jobs being created and preserved.
CDCSBF is only one of two CA lenders that has a national license, which has allowed us to
provide loans at a wider scale. While the majority of our lending has been in the state of
California, we have provided loans in 27 states and the District of Columbia. This also
includes twelve loans in Maryland for just over $1 million and 75% of these loans went to
Entrepreneurs of Color.
Being a CA lender with a national license has allowed us to reach more underserved
businesses and to collaborate with local partners, including other mission lenders, utilizing
the SBA technology called Lender Match, which connects small businesses to lenders. We
believe this is one of the better SBA programs applying the use of technology to serve small
businesses, and we applaud SBA for the program and its upgrades over the years.
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I am also proud to report that over 38% of CDCSBF’s CA loans have been to Entrepreneurs
of Color, even though this is not identified by SBA as an Underserved Target Market per the
CA pilot. Overall, 65% of CDCSBF’s CA loans have gone to businesses in an SBA designated
CA Target Market (the minimum requirement is 60%), with the majority of our loans going
to enterprises that have been in business for less than two years. In fact, nearly 40% of our
CA loans are to pre-revenue businesses (pure start-ups), which is a category of businesses
that traditional financial institutions, including conventional 7(a) lenders, are reluctant to
lend to and for which we have developed a deep understanding and an ability to underwrite.
I would also note that most non-traditional financial technology companies (fintechs) do not
lend to pre-revenue start-ups, as they rely on data driven underwriting to evaluate a
borrower and start-up ventures, particularly underserved entrepreneurs, cannot provide
that data.
The Challenge for Community Advantage
CDCSBF and MLWF supported the changes introduced earlier this year to the CA Program.
We worked with the SBA to implement changes that speed loan processing and the delivery
of capital to underserved communities. Reforms included:
● Extending the pilot program for two years (to September 30, 2024)
● Removing the temporary moratorium on new CA Lender Participation Applications
● Granting delegated authority to all CA lenders
● Modification to Lending Criteria to simplify and streamline underwriting and approval
of CA applications, including authorizing the use of business credit scoring models
● Modifying regulations to provide equitable access under SBA programs and economic
opportunities to justice-involved individuals
● Increasing the maximum CA loan size from $250,000 to $350,000
● Revising fee methodology and maximum interim rate to encourage greater lender
participation in the CA Loan Program
● Revising collateral requirements to increase the speed capital being delivered to
small businesses while decreasing overall costs to the CA Lender and borrower
● Allowing revolving lines of credit to better meet the evolving capital needs of small
businesses
● Revising the requirements for hazard insurance
● Simplifying affiliation principles
These reforms were important and appreciated by the industry. In fact, since the loan size
was raised to $350,000, CDCSBF has Approved 20 loans over $250,000 for $6.4 million.
These loans will create 93 jobs and 16 of the loans were to businesses less than two years
in business. 7 have been to veterans and nearly two-thirds to other underserved
communities.
However, there is a need for continued reforms and changes to the program to increase
lending by current CA lenders and encourage new lenders into the program. First and
foremost is the extension of the program beyond the current two-year sunset of September
30, 2024. The multiple extensions of the program, over different administrations, along with
changing operating rules, have made it problematic for lenders to commit to the program.
No large for-profit financial institution would tolerate such programmatic changes, yet
mission lenders are expected to continue to reach the hardest to serve and adapt to the
changing rules, which are more restrictive than to other 7(a) lenders.
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The SBA has also never defined or specified what success looks like in terms of acceptable
or unacceptable risks. Under the program, mission-based CA lenders were asked to serve
the hardest-to-reach markets. While there is an expectation of higher losses, that has never
been publicly defined and presented to the CA lenders. A conversation with SBA and
agreeing upon the success of the program would assist in further defining the program for
new lenders and likely increase participation.
Some additional reforms, improvements, suggestions and clarifications include:
● We believe it imperative to have SBA’s full support for Congressional action to make
Community Advantage a permanent program.
● The Loan Processing Center still holds these small loans to the $350K+ standard
underwriting SOP requirements – this is a burden and not necessary for the small
loan size for example
● Access to the Federal Reserve Discount Window: During PPP, SBA-approved lenders
including non-depository institution lenders, were eligible to participate in the PPPLF.
This included SBA-qualified PPP lenders, banks, credit unions, Community
Development Financial Institutions, members of the Farm Credit System, and small
business lending companies licensed by the SBA. This would be an excellent option
for so many CA lenders that need access to capital for the CA program.
● Loan Loss Reserve Requirements: Chairman Cardin’s legislation, Community
Advantage Loan Program Permanency Act of 2022 outlines significant improvements
and clarity to the Community Advantage program. Many of the 110+ CA lenders
have been active since June 2011 and have a proven track record of managing the
Loan Loss Reserve Requirements
● Lender policy does not require Life Insurance for these small loans – but the Loan
Processing Center won’t accept that explanation and requires underwriting to justify
● Community Advantage lending is very story-based underwriting – explaining why the
poor credit history occurred, how it is improving and why it makes sense to give
them a chance – But the Loan Processing Center seems to still focus on FICO score
and any event of collection account, delinquency and pushes back, regardless of
story explanation, and implies “lack of reasonable assurance of repayment”
● Projections and Breakeven – Center still expects “historical” 3 year for existing
businesses even though these are small loans
● Business Personal Property (BPP) insurance – we justify not requiring BPP on some
small loans when the use of proceeds is not for FF&E and/or Tenant improvements
and the balance sheet does not have significant assets to be replaced and in each
case we get push back to add the BPP insurance – seems like it is just an
Authorization template mindset – not taking into consideration the information for
each credit
● A reduction in the minimum CA program SBSS Score – from 140 to 130
● The ability for Community Advantage Lenders to provide 100% financing for all types
of use of proceeds. Meaning that for Start-ups no 10% required equity injection and
Change in Ownership no required equity injection. The rationale behind this is not
that the borrowers are unprepared to start or run a business, but rather that the
monies they have saved be left in their hands/control as available liquidity for
unforeseen events/bumps in the road
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● CA Program Credit Elsewhere – eliminate credit elsewhere test for CA lenders or at a
minimum clarify and ease the burden associated with satisfying the test. CA lenders
are already required to target underserved markets and underserved business, which
do not have access to traditional financial resources
As has been discussed above, the CA program fills a critical gap in access to financing of up
to $350,000 for entrepreneurs in underserved communities. By allowing experienced,
mission-oriented lenders to utilize the 7(a) loan guarantee, the SBA is promoting access to
the affordable capital and technical assistance that mission-based lenders like us need to
launch and expand and uplift our nation’s economy.
The Community Advantage Loan Program Permanency Act of 2022
CDCSBF and the MLWG commend Senator Cardin (and Representative Chu’s bill in the
House) for exemplifying true leadership and commitment to small businesses with the
introduction of The Community Advantage Loan Program Permanency Act of 2022,’ which
seeks to codify and strengthen the Community Advantage (CA) Loan Guarantee Program.
The bill recognizes the need to institutionalize mission lending as part of the SBA’s mission
to "aid, counsel, assist and protect, insofar as is possible, the interests of small business
concerns."
This bill would create permanency for the Community Advantage program, which has
operated as a pilot program since 2011, and expands the program to cover both
economically and socially disadvantaged small businesses, including those owned by women
and people of color, and requires a minimum threshold of 70% of loans made in these
target markets by CA lenders. It would also require SBA to provide technical assistance and
training to mission lenders by existing, seasoned non-profit mission lenders. We also know
that data is critical to understanding the successes and areas for improvement. The bill’s
requirement of weekly reporting as well as annually to Congress on the program’s
performance, including demographic data disaggregated by racial subgroups, is an essential
tool.
Furthermore, the legislation codifies the Network Partner model in order to expand the
reach and benefits of CA lending into more underserved markets without necessarily
increasing the number of CA lenders. CDCSBF has some modest experience in working with
the previous version of the partnership model (Community Advantage Associates), and the
Network Partner model as presented in the bill is an improvement on the previous model.
Additional features of the legislation include the ability to graduate a CA lender into a 7a
loan with ease when the business borrower is ready – and this continues to build a pipeline
of bankable businesses in underserved markets and at the same time frees up CA lenders
capital to make new loans to unbanked businesses. The legislation further identifies that a
covered institution is not eligible to receive delegated authority from the Administration
under the program until the covered institution has approved and fully disbursed not less
than 10 loans under the program and the Administration has evaluated the ability of the
covered institution to fulfill program requirements.
We know that small businesses are the backbone of the U.S. economy, and yet many
entrepreneurs lack access to safe, responsible capital. Research from the Federal Reserve
Bank found that 62% of surveyed small firms were denied or discouraged from seeking the
financing they needed to grow or maintain their business. 5 These small firms reported low
5
https://www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2018/sbcs-nonemployer-firms-report.pdf
Page | 11
credit scores and insufficient credit history as the main barriers to credit access. 6 The Small
Business Administration and its programs and partners help entrepreneurs overcome these
barriers by providing business coaching, lender referrals, and guaranteed lending programs.
Mission Lenders understand that CA is the only SBA program enabling small-dollar lending
intentionally targeted to small businesses in underserved communities, including low-to-
moderate income (LMI) areas, rural areas, veteran-owned businesses, and startups. With
the steady decline of community and small bank branches in recent years, CDFIs and other
mission lenders play an important role in ensuring that small businesses are not left behind.
Without the CA program, many underserved entrepreneurs would be left unable to secure
the financing they need to create and sustain jobs and contribute to a vibrant Main Street
economy.
Granting this successful pilot program authorization under the Small Business Act will
provide lenders with the assurance needed to invest in the necessary staffing and systems
to maintain and grow their CA lending portfolios. This assurance will enable CA lenders to
bolster their CA activity just as lending to small businesses overall, and particularly to
businesses that are traditionally underserved.
Comments on the SBA’s Proposed Rule on Small Business Lending Companies
(SBLCs)
On November 7, 2022, the SBA issued a proposed rule 7 that if implemented would lift the
moratorium on licensing new Small Business Lending Companies (SBLC) and would create a
new type of SBLC license for not-for profit, Mission-Based SBLCs, intended to help SBA fill
“capital market gaps” identified by SBA.
While we share the SBA’s commitment to bridging the gaps that for too long has prevented
aspiring entrepreneurs and small businesses from accessing the financing they need to
launch and sustain their enterprises, particularly businesses in underserved and
underbanked markets, we have concerns with the SBA’s proposal and specifically questions
about how the SBA’s proposal would increase SBA-backed lending to the underserved
communities and entrepreneurs that The Agency is looking to serve - those “struggling to
obtain financing on non-predatory terms.”
CDCSBF and our lending partners in the Mission Lenders Working Group (MLWG) are
committed to working with the SBA to increase SBA-backed lending to underserved markets
and increase the efficiency of SBA lending while at the same time making sure every SBA
customer is getting a loan that is “right sized, priced and structured to its business needs.”
We want to make sure underbanked businesses have access to responsible financing and
are not left without options other than “the easy to access, high, priced predatory
products.”
Under the Proposed Rule, the SBA would lift the moratorium on new SBLC licenses. This
would allow SBA to issue new SBLC licenses to for-profit, non-depository lenders and
recognizing the oversight costs associated with bringing on new SBLCs, the SBA would
assign only 3 new additional licenses to start. The proposed rule would also create a new
type of SBLC license, a Mission-Based SBLC (Mission SBLC), for non-profit, non-depository
institutions that would be required to lend to businesses in underserved markets. The rule
6
https://www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2018/sbcs-nonemployer-firms-report.pdf
7
Small Business Lending Company Moratorium Rescission and Removal of the Requirement for a Loan Authorization” (RIN
3245-AH92)
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states that an existing CA lender “in good standing” can apply for a Mission SBLC license but
the rule leaves it to the SBA’s discretion to determine what constitutes a “CA lender in
“good standing.” SBA also states that since Mission SBLCs are already regulated as CA
lenders, it has the capacity to regulate Mission SBLCs as they are not increasing the total
number of entities supervised.
Lifting the moratorium and adding non-mission SBLCs, on its surface, does not necessarily
improve access to mission lending for underserved communities. SBA is proposing to
impose additional requirements on Mission-Based SBLCs “to ensure that Mission-Based
SBLCs fill identified capital market gaps and provide targeted financial assistance to
underserved communities. However, while the SBA proposal is designed to address “certain
markets where there are capital market gaps” the proposal does not identify the specific
market gaps that Mission SBLCs are expected to target, and the rule does not establish a
percentage of loans to be made in a target market. Unless the SBA clearly and intentionally
identifies the underserved market gaps that it is seeking to reach there will be no way to
evaluate the success of the proposed rule. And the proposed rule would not require or even
request a new for-profit SBLC to target lending to an underserved capital market or
markets, which is contrary to SBA’s stated goal and may have adverse impacts on
programmatic integrity.
Similar to the current Community Advantage program, SBA, to “ensure that Mission-Based
SBLCs fill identified capital market gaps and provide targeted financial assistance to
underserved communities,” proposes to place additional restrictions, requirements and
burdens on mission SBLCs, which already have historical track records of lending to
underserved communities and individuals. Yet as noted above, it is proposing no restrictions
on the three new non-mission-based SBLCs. We have serious doubts and concerns that for-
profit, non-mission lenders will provide the level of outreach and service that mission
lenders provide.
We believe SBA is focused on increasing loan volume as opposed to ensuring that
businesses in underserved or undercapitalized markets get the right sized, structured, and
priced loan. Ensuring the businesses have access to capital is critical – but so is ensuring
that they have access to financing that leaves them better off than they were before – and
mission lenders also understand that some businesses are not ready for a loan, even if the
Artificial Intelligence Algorithm says otherwise.
For the duration of the CA program, participating lenders have been “recommended” to
provide Technical Assistance (TA) to their clients in the program. While SBA recommends or
encourages TA, it is core to how mission-lenders operate and work with their clients. We
have provided hundreds of hours to our clients, as have other lenders in the MLWG. And
while we assume this will be a continued condition to transition from CA lender to Mission
SBLC, no such requirement is being proposed for the three new non-mission SBLCs. As
many studies have demonstrated, TA is the “secret sauce” of mission lenders, and which
provides for their clients’ success and minimizes loan loss.
It is also unclear how the proposed rule will promote mission lending when so many
programmatic details are not addressed (i.e., geography, maximum loan size, target
markets, etc.). As a current CA lender that has the capacity and willingness to participate in
the full SBLC program, the rules as proposed leave too many details to be approved by SBA
personnel on a lender-by-lender basis, thus creating separate guidelines for each lender.
SBA promotes this individualized approach as flexible in order to fill specific market gaps,
yet it lacks clarity for current CA lenders evaluating the program. Further, while we have a
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level of trust and confidence in the current leadership at SBA, current leadership will change
and the rules and requirements for the Mission-Based SBLC could change. This has been
clearly evidenced by our experience in the Community Advantage Program.
Per language in the proposed rule, we understand that based on the success of the
Paycheck Protection Program (PPP), “removing the moratorium on licensing new SBLCs and
Mission-Based SBLCs opens opportunities for more non-traditional lenders to participate in
the 7(a) Loan Program, providing additional sources of capital to America's small businesses
and targeting gaps in the credit market.” However, one need only refer to the recent report
and recommendation from the report of the Select sub-committee on the Corona Virus that
should give serious pause and concern before allowing new “non-traditional lenders” into
the 7(a) program. In fact, the report recommends that congress should continue to fund
(mission) community lenders, so they can increase their capacity to directly serve
underserved communities. Moreover, the report states that Congress should consider
additional federal regulations for non-bank/non-depository lenders, such as being
considered under this proposed rule. Report Reveals Fintechs Facilitated PPP Fraud | House
Select Subcommittee on the Coronavirus Crisis.
Rather than issuing new for-profit SBLC licenses in order to expand SBA-backed lending into
underserved markets, we encourage the SBA to elevate the CA pilot and promote the work
of CA lenders
● Immediately extend the CA Pilot program for five years or more and support
Congressional efforts to codify CA, as proposed in the Community Advantage Loan
Program Permanency Act of 2022. The current extension to September 2024, is not
sufficient for a prudent mission lender to want to invest in a program with only two
years of runway
● SBA should publicly support the proposed bill which makes CA permanent
● SBA could make further regulatory reforms to the CA program as described above.
While the changes made earlier this year were extremely helpful, additional changes
to the program will allow lenders to reach deeper into underserved markets
● Work with Congress so that CA lenders have access to grant funds to support the TA
provided to the small businesses with which it supports under the CA program. This
could include accessing the PRIME Program or changes to the SBA Microloan
Program
Finally, we take issue with the following statement made by SBA in the proposed rule:
“SBA considered leaving the regulations unchanged and relying upon
the CA Pilot Loan Program to address the needs of access to capital in
underserved markets; however, the low historic loan volume and lack
of any CA loan activity in some rural and underserved geographic areas
makes this an unviable alternative.”
This statement suggests that the SBA has given up on CA – and we think that is the wrong
approach. We urge the SBA to lean into the CA program and work to strengthen it beyond
the changes made earlier this year. The Cardin bill does that. We certainly hope that the
mission SBLC is not a harbinger that the SBA is going to eliminate the CA program. We
believe that a robust CA program can exist alongside a mission SBLC program, if that is the
direction the SBA takes.
Page | 14
Dated: October 2022
SBA COMMUNITY ADVANTAGE PILOT PROGRAM TIMELINE
SEPTEMBER 29, 2022 JUNE 30, 2022 APRIL 29, 2022 APRIL 1, 2022
SBA amended its small Final Rule on Program SBA extended the CA pilot
Revised Participant Guide, Major
business size regulations and Changes to all 7(a) & 504 program changes included program to September 30th,
programs became effective maximum loan amounts to $350K, 2024 and lifted the
incorporated OMB's NAICS
August 1, 2022. 87 FR lender underwriting, max interest moratorium on new CA
Codes. Effective October 1,
38900 rates & fee lender may charge; - lenders. Effective April 1,
2022. 87 FR 59240 2022. 87 FR 19165
Effective May 31, 2022. 87 FR
25398
OCTOBER, 23, 2014 DECEMBER 28, 2015 SEPTEMBER 12, 2018
NOVEMBER 9, 2012
SBA Policy notice aligned the The CA Pilot Program was extended until To mitigate risks, a moratorium on
The CA Pilot Program was
credit underwriting and March 31, 2020. The program adopted the accepting new CA Lender
extended to remain in effect 7(a) Small Loan credit standards, credit
closing updated in SOP 50 10 applications was put in place.
until March 15, 2017. score, and CA Lenders were authorized to
(G) SBA. Also provides for Effective October 1, 2018.
Effective November 9, 2012. process apps under Delegated Authority
Delegated Authority SBA after making initial disbursements on at 83 FR 46237
77 FR 67433 Policy Notice 5000-1324 least five CA loans. Effective December 28,
Effective October 23, 2014 2015 80 FR 80872
FEBRUARY 8, 2012
SEPTEMBER 12, 2011 FEBRUARY 11, 2011
815
SBA increased the maximum allowable rate a CA
Lender could charge a borrower to prime + 6%. SBA released the first CA Participant Guide, SBA issued an Notice to introduce the
CA Lenders were allowed to sell loans in the & modified regulatory waivers within the CA Community Advantage Pilot Program
secondary market. SBA removed the initial program in order to permit CA Lenders to that intended to support SBA's pledge to
examination/ review requirements and instead pledge loans made under the CA Pilot
expanding access to capital for small
stated that SBA would monitor CA Lenders using Program as collateral for lender financings
various oversight tools. Effective February 8,
businesses in underserved markets. Max
approved by SBA Effective September 12,
2012. FR 6619 Interest Rate of Prime +4%. Effective
2011. 76 FR 56262
September 12, 2011. 76 FR 9626
This timeline was developed by the Mission Lenders Working Group (MLWG) Staff in October 2022. The
MLWG is a coalition of SBA-certified Community Advantage (CA) lenders from across the country with a
shared commitment to financing, supporting, and sustaining underserved and underbanked small
businesses. For more info check our the MLWG website at missionlenders.net or scan the QR code.
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