01-1787. SBA Minority Contractors Finance Pilot Loan Program

AGENCY:

Small Business Administration.

ACTION:

Notice of pilot program “SBA Minority Contractors Finance Pilot Loan Program”

SUMMARY:

The Small Business Administration (SBA) is establishing a pilot program in which certain lenders will be permitted to use their own documentation forms to expeditiously approve loan amounts up to $250,000 for small business contractors and subcontractors in Rhode Island using the Section 7(a) loan program. The program will offer a technical assistance component provided by a Small Business Development Center (SBDC) and additional guaranty support from non-SBA sources for a lower risk exposure that is attractive to lenders and other modifications to SBA's normal lending practices and procedures. This program will be called the SBA Minority Contractors Finance Pilot Loan Program. The purpose for this 18-month pilot program is to address the difficulties that small business contractors and subcontractors generally experience with access to capital and bonding. This loan pilot program is a key part of an initiative that will first operate in Rhode Island and, may be expanded to other areas of the country.

EFFECTIVE DATE:

This pilot will be effective on January 22, 2001 and will remain in effect for 18 months.

FOR FURTHER INFORMATION CONTACT:

Mark Hayward, District Director, U.S. Small Business Administration—Rhode Island District Office, 380 Westminster Mall, 5th floor, Providence, RI 02903, [phone]; FAX: [phone].

SUPPLEMENTARY INFORMATION:

The Small Business Administration is establishing a streamlined, user friendly loan pilot program designed to help contractors and subcontractors more readily obtain financing and bonding.

SBA found that small business contractors and sub-contractors historically have not received the procurement, management, technical, and financial assistance necessary to maintain their viability. A Rhode Island advisory panel comprised of local lenders, contractors, bonding agents, and state agencies examined the problem and determined that lending to contractors and subcontractors was specialized financing and that the local lending community was disinclined to provide the same level of underwriting and post approval oversight on loans of $250,000 or less as they were for larger contract loans. Moreover, the interest of the taxpayers whose funds support the SBA guaranty had to be protected.

The principal barriers were seen as (i) too much risk and (ii) excessive cost of monitoring. SBA concluded that if borrowers received specialized technical assistance and the contribution of additional guaranty support from sources outside SBA, financing might be more forthcoming from local lenders.

To that end, the Agency has authorized the acceptance of a supplemental guaranty on a portion (up to 90 percent) of the unguaranteed percentage of SBA 7(a) loans, that will be offered by a lending entity of the Rhode Island Economic Development Corporation. The lending entity will contribute as much as $250,000 to assist minority business enterprises.

The specialized technical assistance component will include the utilization of a SBDC to provide the loan packaging assistance that would help the contractors and sub-contractors prepare their commercial loan applications. Non-SBA funds will support the hiring of an experienced team of contracting professionals with the proper knowledge, skills, and abilities to assist the 15-30 client contractors expected to participate in the pilot in bidding, managing, and completing their projects for 18 months. These professionals will be selected by an Executive Committee consisting of SBA staff, local lenders, contractors, bonding agents, and state agencies in a private/state/federal partnership. The Executive Committee also will provide guidance and oversight of the program. The non-SBA funding and resource partners are private foundations, state agencies, banks, and corporations who are committed to producing positive results. Finally, as part of the technical assistance, an Advisory Board is being formed consisting of prime contractors and state agencies to assure deal flow and expertise.

This pilot program emphasizes collaboration and partnerships with Federal, state and local agencies, as well as private sector partners. The pilot program is scheduled to last 18 months, beginning January 22, 2001. Prior to the termination date, SBA will evaluate the program to determine if it should be continued as is, expanded, or ended.

Program authority: 15 U.S.C. 636(a)(25)(b) or Section 7(a)(25)(b) of the Small Business Act.

Dated: January 11, 2001.

Charles D. Tansey,

Associate Deputy Administrator for Capital Access.