(Washington, DC) — Senate Committee on Small Business & Entrepreneurship Ranking Member Ben Cardin (D-Md.) today introduced two bills to empower entrepreneurs in underserved communities.

The Closing the Credit Gap Act would make the Small Business Administration’s (SBA) 7(a) Community Advantage Pilot Program (CA) permanent, providing stability and certainty for existing lenders and attracting new lenders focused on underserved markets. In addition to codifying the requirement that Community Advantage lenders make at least 60 percent of their loans to borrowers in underserved markets, the bill expands the geographic and demographic reach of SBA loans by broadening the categories of businesses that are able to receive CA loans to include women and business owners who are socially and economically disadvantaged, regardless of business location.

The Unlocking Opportunities in Emerging Markets Act would establish an Office of Emerging Markets (OEM) within SBA’s Office of Capital Access to ensure that SBA’s access to capital initiatives address the specific needs of entrepreneurs in underserved domestic emerging markets in a coordinated way.

“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,” said Ranking Member Cardin. “With these two bills, we will build on the Community Advantage program’s demonstrated ability to get capital into the hands of underserved entrepreneurs, and we will empower a senior level official to oversee Community Advantage and other targeted efforts. Together, these bills will open up opportunities for entrepreneurs in underserved communities, so they can pursue their dreams, build successful companies, create jobs and ensure SBA is coordinating and meeting the objectives of its diversity initiatives.”

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 does not have a strong record of reaching underserved communities. In Fiscal Year 2018, when comparing the two programs, Black business owners received only 4.5 percent of SBA 7(a) loans while receiving 12 percent of CA loans; and Hispanic business owners received 8.5 percent of 7(a) loans compared to 17 percent of CA loans. Similarly, women entrepreneurs received 18 percent of all 7(a) loans approved, but received 30 percent of all loans in the CA program; and veteran business owners received 4 percent of SBA 7(a) loans compared to 10 percent of CA loans.

Access to capital is an especially uneven playing field for minorities, who are two to three times more likely to be denied credit; more likely to avoid applying for loans, based on the belief that they will be turned down; and more likely to receive smaller loans and pay higher interest rates on the loans that they do receive. Due partially to these trends and other historical roadblocks, minorities own only 29 percent of small businesses despite representing 39 percent of the overall population. These challenges are felt most acutely by Black business owners.

Despite these headwinds, women- and minority-owned businesses are the fastest growing businesses in the country in terms of business formation. The issue is of particular importance in Maryland, which is home to the highest concentration of women- and minority-owned companies in the country.

SBA has helped level the playing field for underserved communities in government contracting and entrepreneurial development, but access to capital is the only major area where the agency does not have an office specific to the needs of underserved communities. The Cardin bills will work in concert with the OEM overseeing the Community Advantage program, as well as spearheading all SBA efforts to improve access to capital for entrepreneurs in underserved communities.

Specifically, the Closing the Credit Gap Act would:

  • make the CA pilot permanent, building on lessons learned over the past eight years;
  • expand the geographic and demographic reach of SBA loans by making women and minorities eligible groups for CA loans, regardless of business location, in addition to the nine categories of businesses and areas that are currently eligible to receive CA loans;
  • allow SBA to waive the $250,000 cap on maximum loan sizes up to $350,000 to help borrowers in more expensive regions and industries, as well as victims of abusive loans;
  • promote responsible growth of CA by capping the number of loans made at 10 percent of the total number of 7(a) loans guaranteed and limiting the number of lenders to between 150 and 200 active lenders annually for five years for a more targeted approach to adding new lenders;
  • require SBA to provide upfront and ongoing training to CA lenders in-person and online to ensure lenders can navigate SBA regulations and share best practices to maintain healthy loan portfolios; and
  • limit when a lender may use delegated authority to process loans and mandate regulations for establishing lender performance metrics and targeted loan loss reserves for loans sold on the secondary market to increase oversight.

The Unlocking Opportunities in Emerging Markets Act would create and empower the Office of Emerging Markets to:

  • create and implement strategies and programs that provide an integrated approach to the development of small business concerns in an emerging market;

  • develop and recommend policies concerning the microloan program and any other access to capital program of the Administration as they pertain to small business concerns in an emerging market;

  • establish partnerships to advance the goal of improving the economic success of small business concerns in an emerging market; and

  • review the effectiveness and impact of the microloan program and any other access to capital program of the Administration that is targeted to serve small business concerns in emerging markets.