The U.S. Small Business Administration is augmenting its efforts to bring traditionally underserved markets into the mainstream economy.
This summer, the administration expanded nationwide a pilot program that matches loans and technical and management assistance to entrepreneurs.
The Community Express Loans are a joint initiative between the SBA and the National Community Reinvestment Coalition and are aimed at areas usually comprised of small businesses owned by minorities, women and veterans, particularly those located in low- and moderate-income urban and rural areas.
The loan provides an 80 percent guaranty to banks for loans up to $100,000 and 75 percent for loans above that figure. The maximum loan in the program is $250,000.
"It means, in the unlikely event there was a default, SBA has 80 percent of the loss and the bank has 20," explains Jane Butler, SBA's associate administrator for financial assistance.
In comparison, a similar SBA loan, the SBA Express Loan, offers a 50 percent guaranty for loans up to $150,000.
"We have had lenders beating down our doors interested in the product," Butler says. "We will make it available to all of our preferred lenders."
Already the loans are available in cities including Cleveland, Akron and Pittsburgh. The SBA's Columbus office is in the process of informing banks of the new program to encourage their participation.
Daren Maloney, senior vice president in the business banking group for Bank One Cleveland, says the increased guaranty allows the bank to grant loans it would not have otherwise.
"The bank takes on some additional risk, as does the SBA. It's an increased shared risk," he says.
As part of the pilot project Bank One began in the summer of 1999 in Cleveland, Milwaukee, Detroit and Chicago, 19 loans were closed for more than $1.7 million, he says. Bank One is expanding the program to other areas.
Among all the banks participating in the pilot program, more than 110 loans totaling about $11.1 million were granted. Banks are permitted to use their own documentation in an effort to expedite the process.
The SBA hopes entrepreneurs, too, will be interested in the new loan.
Technical assistance is paid for by the participating bank, which contracts with local providers to give the business owner help with business planning, basic business finances, tracking receivables, identifying resources that could assist with marketing and sales and other kinds of networking.
"What we have committed to do besides making the capital available for the client," Maloney says, "is try to give them technical assistance on the front and back end of the loan. We want to make sure they have a sound business plan and that, when we close the loan, we don't simply walk away and wish them well."
"In a lot of areas, they're contracting with Small Business Development Centers, so technically we already do have that kind of assistance available in the city," says Doug Sweazy, business development specialist in the SBA Columbus District office.
"Each loan application would be different, but with the technical assistance being provided, it should be advantageous to any small business starting out or just in the process of its first expansion," says Frank D. Ray, district director in the SBA Columbus office.
The loans include term loans, lines of credit and commercial mortgages. Loan proceeds can be used for purchasing inventory, machinery and equipment, land and buildings, and for working capital.
"Hopefully," says Gil Goldberg, district director of the SBA's Cleveland office, "that technical assistance and advice makes the loan a better loan and a better investment for the taxpayer." How to reach: U.S. SBA, www.sba.gov, (800) 827-5722 or, in Columbus, 469-6860. Other SBA offices: Pittsburgh, (412) 395-6560; Cleveland, Akron and Stark County, (216) 522-4180
Joan Slattery Wall (email@example.com) is an associate editor and statehouse correspondent for SBN.