SBA’s
goal is to ensure the Community Express program is the best possible vehicle to
meet underserved markets’ financing needs on reasonable terms and conditions.
We want to make sure that these borrowers – with the most need for access
to capital – receive loans that will support and enhance their businesses
without creating an unnecessary financial burden.
Myth:
Community Express is the only SBA loan program for underserved borrowers.
Fact: SBA has many loan programs available to small businesses, including
those in underserved markets. These programs include: SBAExpress, Patriot Express,
regular 7(a) loans, and short-term and export loan products. (More information
is available at: www.sba.gov/services/financialassistance)
All these programs are widely available through SBA’s network of thousands
of lending partners nationwide. They are available in every part of the country,
through banks, credit unions, and other financing companies. They are available
in inner cities, rural areas, and suburbs: again, all over the country. Furthermore,
the SBA has been working hard to bring new lenders into its programs, especially
in underserved markets.
Myth: For every
Community Express loan made, three to five jobs are created in the economy.
Fact:
SBA’s loans do have a positive impact on a firm’s job growth. As outlined
in a study by the Urban Institute, the average small business utilizing a 7(a)
loan grew from 14 employees in the year before taking to loan to 16 employees
two years after taking on the loan. In other words, the job growth is gradual
and measured. With average Community Express loan size being roughly one-sixth
the size of a regular 7(a) loan, it’s highly unlikely that each Community
Express loan creates three to five jobs.
Myth:
An average Community Express loan will generate about $100,000 in tax revenue
from the borrower.
Fact: Generating
tax revenues indicates that a small business is profitable and, thus, a sustainable
enterprise. But the fact that a small business received a Community Express loan
does not directly translate into tax revenue. First, a significant percentage
– about 40 percent, far more than in other 7(a) programs -- of Community
Express loans go to start-ups, which generally do not immediately generate taxable
income and, in fact, can take several years to do so. Second, as noted below,
SBA’s Community Express loans do not perform as well as the agency’s
other guaranteed loan programs. Thus, Community Express loans are more likely
to default, indicating the borrowers are not generating sufficient income to make
loan payments, are not profitable, and not able to generate taxable income.
Myth:
The Community Express loan program mirrors the financial and risk profile of the
rest of SBA’s loan portfolio.
Fact:
Community Express represents a very small percentage of SBA loan dollar volume,
about 2 percent. However, its financial results are weaker than those in other
loan programs. The Community Express default rate in the past three years is more
than double that of SBA’s other loan programs, and delinquencies are 45 percent
higher than in other programs. Other performance metrics are similarly troubling.
All of these considerations require SBA to closely monitor and evaluate its performance.
Myth: The SBA should be satisfied with
the performance of the Community Express program.
Fact:
As stated above, several performance measures are cause for concern in Community
Express. The program must be transparent, accountable and fiscally responsible.
Additionally, SBA wants to ensure the program minimizes fraud, waste and abuse,
and truly delivers good loan products at reasonable prices to underserved borrowers.
Community Express is a pilot program that continues to need testing and refinement.
Following extensive internal analysis and discussion, as well as discussions with
SBA’s lending partners, SBA is restructuring and enhancing the Community
Express Pilot Program to improve its management, administration, oversight, and
delivery. Notice of the restructuring has appeared in the Federal Register, with
more details forthcoming. The agency welcomes comments on the changes from all
interested parties.
At the same time, the
Inspector General has been asked to review the program due to relatively higher
credit risk in the program to date. SBA must ensure Community Express is properly
designed to help underserved borrowers fairly and appropriately. We also must
make sure the program minimizes waste, fraud and abuse. As we review the program’s
pilot status and make decisions about its future, we want to ensure the program
minimizes fraud, waste and abuse, and truly delivers good loan products at reasonable
prices to underserved borrowers.
Myth:
Community Express is widely utilized by SBA’s lending partner network.
Fact:
The opposite is true. This is one of the most worrying facts about Community Express:
very few SBA-approved lenders utilize the program. Of SBA’s 4,500 lenders,
fewer than 150 use Community Express. And just two lenders make more than 90 percent
of Community Express loans. That means the program, as currently constructed,
isn’t meeting the needs of most small business lenders and presents a greater
risk to the agency and the taxpayer. SBA is looking at ways to make sure the program
is useful to lenders. The agency thinks that the alterations to the pilot will
expand the impact and reach of the program, and will attract more lenders to participate
in the program.
Myth: The SBA and Congress are not working together
to address the future of the Community Express program.
Fact:
Again, the opposite is true. SBA is regularly consulting with Congress in
its review of the program. The agency is dedicated to meeting the Congressional
goals and mandates of the program, especially the goal of reaching and helping
underserved borrowers throughout the country.
Myth:
The number of loans made in an SBA program is the most important metric in evaluating
the success of that loan program.
Fact:
SBA’s mission is to aid, counsel, assist and protect the interests of
small businesses, to preserve free competitive enterprise, and to maintain and
strengthen the overall economy of our nation. Above all, SBA looks at a wide variety
of performance measures to ensure each of its loan programs are effectively achieving
their goals. Those goals always mean ensuring that borrowers are protected, and
that the strength and health of the program are protecting the taxpayers. Ultimately,
a loan program’s success is determined by a complex mix of many measures
and considerations. Numbers of loans, and dollars loaned, can be important metrics.
So can the number of lenders participating in a program. Additionally, other financial
metrics, like delinquency rates, are important factors. Again, the aim in having
several perspectives of success is to ensure we are good stewards of the American
taxpayers’ funds.
