(Washington, DC) — Senate Committee on Small Business & Entrepreneurship Ranking Member Ben Cardin (D-Md.) today called for increased lending to underserved communities during a hearing on the U.S. Small Business Administration’s (SBA) four major capital access programs: the 7(a) Loan Guaranty Program, the 504 Loan Guaranty Program, the 7(a) Community Advantage Pilot Program, and the SBA Microloan Program. The hearing is the first in a series of scheduled hearings to review SBA’s capital, counseling, and contracting programs to inform the Committee as it drafts legislation to make needed updates and improvements.
“The importance of SBA’s role in the American economy is without question, so we must use reauthorization as an opportunity to improve the inclusivity of SBA loan programs, which are not adequately reaching underserved communities—especially minorities, women, and veterans,” Ranking Member Cardin said during his opening statement. “Minority-owned firms 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.”
Last September, Ranking Member Cardin hosted a field hearing at Morgan State University to learn more about the struggles minority entrepreneurs face in accessing capital. The key takeaway from the hearing was that minority small business owners need SBA to fill the gaps where private lenders often fall short. Moreover, the witnesses stressed that increased investment in minority-owned small businesses will help close the unemployment and wealth gaps.
Minority-owned businesses are the fastest growing segment of small businesses in America, but while minorities represent 39 percent of the U.S. population, they own only 29 percent of small businesses. The disparity is due partially to the difficulty minorities face in accessing capital to start and grow businesses. Minority-owned businesses are 2-to-3 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. These challenges are felt most acutely by Black business owners.
One way for SBA to fill those gaps is to build on efforts, such as the Community Advantage Pilot Program and the Microloan Program, that have done a better job of reaching underserved communities than the traditional 7(a) program.
In Fiscal Year 2018, when comparing the 7(a) and Community Advantage programs, Black business owners received less than 5 percent of SBA 7(a) approvals while receiving 12 percent of Community Advantage approvals. Similarly, Hispanic business owners received 8.5 percent of 7(a) approvals compared to 17 percent of Community Advantage approvals. Additionally, between Fiscal Years 2008 and 2018, Black business owners received 30 percent of SBA Microloan approvals and Hispanic business owners received 21 percent.