SBA loans soar, but many of the smaller businesses fall short
New data from the US Small Business Administration shows the agency made a record $ 44.8 billion in traditional small business loans in fiscal 2021, in addition to $ 1.1 trillion in funding related to COVID.
However, a funding gap persists for very small businesses seeking smaller loans. In FY2021, $ 71.8 billion in microcredit funding went to 4,400 small businesses, 41% of which went to entrepreneurs in underserved communities, including black-owned small businesses. and Hispanics, according to an SBA press release. reported.
However, the loans took place against a backdrop of declining funding. “Over the past five years, loans to smaller borrowers through the SBA-backed 7 (a) Loan, Express and Community Advantage have declined by more than 45%,” SBA noted in a press release.
The drop was “not unique” to the SBA’s loan portfolios, the statement said. “Federal Deposit Insurance Corporation (FDIC) data on commercial small business loans by regulated banks shows an overall 3% drop (translating to 600,000 loans) in the proportion of loans below $ 100,000 “, says the press release. “This lack of lenders’ appetite for small dollars has resulted in disproportionate impacts on minority business owners. Non-Hispanic black-owned businesses and businesses with sales of $ 100,000 or less were half as likely as non-Hispanic white-owned businesses to obtain bank funds (23%, 24%) , and businesses owned by Latinos were slightly fewer (34%). “
It might be difficult to reverse this persistent trend. SBA Trustee Isabella Casillas Guzman has pledged to fill the access to capital gap for smaller businesses and those run by entrepreneurs from underserved demographics, calling her her “star.” North “.
“While progress has been made, our data also tells a deeper story: historic inequalities in access to capital persist, and we need to do more to lower barriers to entry of opportunities for all of our entrepreneurs,” she said in the statement. “We will continue to use our impactful programs to meet small businesses where they are and connect them with the resources they need to thrive. “
Meanwhile, lending has accelerated for small businesses seeking larger loans since the pandemic. The SBA said that in fiscal 2021, the SBA supported $ 36.5 billion in 7 (a) loans, typically used for working capital. Minority business owners received $ 11 million in loans. Women-owned businesses borrowed nearly $ 5 billion and veterans-owned businesses borrowed $ 1.2 billion.
With respect to 504 loans, which are often used for real estate, equipment and machinery, the SBA supported 9,600 loans worth over $ 8.2 billion, “completely exhausting the authorization. funding for the first time in the history of the program ”. Of these loans, administered by Certified Development Corporations (CDCs), minority businesses received nearly $ 1.88 billion in financing and women-owned businesses borrowed more than $ 172 million.
If the SBA can bring more access to capital to all entrepreneurs in the coming months, it will undoubtedly have a ripple effect within the lending community. This could make a big difference for the many micro businesses that need funding right now after months of pandemic challenges.