WASHINGTON, D.C. — The U.S. Small Business Administration (SBA) has instituted significant reforms to its Community Advantage Small Business Lending Company (SBLC) program following issues of elevated loan defaults and concerns over the program’s oversight. Originally designed to serve underserved communities through mission-driven lenders, the program will now undergo stringent changes aimed at bolstering its financial stability and protecting taxpayer funds.
The Community Advantage program, launched as a pilot under the Obama Administration, licenses non-bank and nonprofit organizations to distribute federally backed 7(a) loans to underserved businesses. However, the Biden Administration’s revival and expansion of the program in 2023, which included approvals for over 140 new lenders, resulted in alarmingly high default rates. Over the past 12 months, the program recorded a default rate of approximately 7%, more than double the overall 7(a) loan portfolio average. Some lenders exhibited troubling early problem loan rates exceeding 30%.
“These reckless lending experiments jeopardized taxpayer dollars and undermined the integrity of the 7(a) program,” said SBA Administrator Kelly Loeffler. “This Administration is restoring safeguards to ensure prudent and sustainable financial practices.”
The SBA has reinstituted a moratorium on approving new Community Advantage lending licenses, a measure initially enacted in 2018 under the Trump Administration. This moratorium, coupled with a newly established standard operating procedure (SOP), aims to address current risks. Among the key reforms, lenders will now be required to increase their capital reserves significantly to mitigate potential financial losses.
Loeffler criticized the program’s history of lax regulation, emphasizing the need to balance the mission of serving underserved communities with responsible financial oversight. “We are putting a stop to practices that prioritize political agendas over long-term economic stability,” she stated.
With these changes, the SBA aims to ensure the Community Advantage program aligns with its mission to support small businesses while maintaining the financial integrity of its lending practices.
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