What is a Community Express Loan?
One of the ways in which the Small Business Administration (SBA) has worked to help women, minorities, and veterans in business has been through the Community Express Loan Program, a lending program that falls under the SBA's 7(a) program. In the past, Community Express Loans were one of the easiest and fastest ways for eligible small-business owners to get government-guaranteed loans.However, recent changes have had a dramatic (and negative) impact on how loans are allocated, as well as dramatically reduced the number of loans being offered, and even the amount of the loan to approved applicants.
Why Community Express Loans Were so Popular
This loan program was originally intended to target the credit needs of women-owned, minority-owned, and veteran-owned businesses, especially in lower income or other economically struggling communities. However, all small business owners seeking loans of less than $25,000 may now eligible to apply for these loans. And, businesses owners who are in “historically underutilized” business zones, or meet any requirements under the intensely controversial “Community Reinvestment Act” may also now be eligible for Community Express Loans.Key features of past Community Express loans:
- Qualifying business owners borrowing $5,000 to $25,000 did not have to put up collateral;
- Loans were available for up to $250,000 with an 85% government guarantee;
- No business plan was required to be submitted to secure a loan.
It is no surprise that Community Express loans had a high rate of default given the relaxed manner in which loans were given out. The SBA’s changes are a bit too drastic, but clearly something needed to change. And, it has.
Important Changes in the SBA's Community Express Loan Program
- The SBA is now requiring more documentation and a business plan from all applicants;
- Is strictly enforcing the existing requirement that applicants must attend technical and financial-assistance classes;
- Loans for underserved populations are no longer given higher consideration (this includes loans to women and minorities), thus widening the pool of eligible applicants while reducing the loans available;
- The SBA is now severely restricting (lender by lender) the number of loans per month to 100 for the largest lenders, and 10 to smaller lenders (though exceptions do apply); and
- The total number of Community Express loans cannot exceed 10% of all 7(a) loans (this has always been the case, but now the SBA is likely to not come even close to the permissible 10% rule).
According to Raymund Flandez, in The Wallstreet Journal (December 9, 2008); “In 2008, the Community Express loan program accounted for about 1% of the total dollar amount that the SBA guaranteed and 9% of all SBA loans, up from only 1% in 2002. Seventy percent of the loans went to minorities, and 47% went to women.”
The underserved in business are no longer being served by the Community Express program, and lenders are being restricted far beyond the “100 limit per month” cap. For example, Innovative Bank of Oakland, California had been funding as many as 350 to 400 loans per month. In February 2008, the SBA restricted them to 175 loans per month and since August 2008, Innovative Bank is only permitted to fund 10 Community Express loans per month.
Women in business should be advised that thousands of qualified applicants are being turned away each month for Community Express loans and the SBA has indicated that it does not plan to ease monthly lending restrictions any time soon. In fact, the SBA has deemed these changes to be more along the lines of a “pilot program” in need of “testing and refinement” than as a temporary solution. This would suggest that the changes are here to stay for quite some time.
