Office of Economic Opportunity “Building Success in Underserved Markets” CDFI Coalition The Community Advantage/Microloan Ecosystem: What’s Happening Three

Office of Economic Opportunity “Building Success in Underserved

Markets”

CDFI CoalitionThe Community Advantage/Microloan

Ecosystem:What’s Happening Three Years In, Two to GoU.S. Small Business Administration

Office of Economic Opportunity

February 25, 2013


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Community Advantage by the Numbers

Fiscal Year Approved Loans Approved Dollars2015 194 25,823,700$ 2014 115 15,316,600$ 2013 77 10,332,400$ 2012 25 3,396,600$

Region Lender Applications

Lenders Approved

Active Lenders

# Loans Approved

Gross $ Loans Approved

# Loans Disbursed

Gross $ Loans Disbursed

1(CT,MA,ME,NH,RI,VT) 7 70 9,943,200 53 7,268,200 2(NJ,NY,PR) 3 229 30,285,500 160 21,335,700

3(DC,DE,MD,PA,VA,WV) 8 41 5,836,200 23 3,209,200 4(AL,FL,GA,KY,MS,NC,SC,TN) 12 59 8,762,200 34 5,505,800

5(IL,IN,MI,MN,OH,WI) 12 138 18,775,400 76 10,681,000 6(AR,LA,NM,OK,TX) 4 125 12,065,900 95 8,948,400

7(IA,KS,MO,NE) 0 0 -

0 - 8(CO,MT,ND,SD,UT,WY) 5 54 7,722,100 45 6,282,200 9(AZ,CA,GU,HI,NV) 8 418 54,652,700 311 42,242,700 10(AK,ID,OR,WA) 1 16 3,177,000 11 2,314,500

All Regions 0 0 60 1,150 151,220,200 808 107,787,700

Use of Proceeds Proceed $ % of $03 Inventory / Working Capital $ 59,474,186 40%01 Fixed Asset Purchase $ 52,631,624 36%02 Debt Refinance $ 19,577,952 13%04 Business Acquisition $ 10,436,474 7%05 Other $ 5,325,881 4%

90 approved CA Lenders, ~200 locations


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LINC (Leveraging Information & Networks to access Capital)

What is it? An online referral tool to connect small business borrowers

with nonprofit lenders from the Microloan, Community Advantage (CA) , & 504 Programs

Prominently displayed on sba.gov Prospective borrowers complete an online questionnaire (~12

questions) LINC Lenders operating within the borrower’s county are

emailed the responses to those questions

Who is Participating? 150+ Lenders (and counting!) Represent all 50 states, DC, & PR Account for more than 2/3 of loans made in the Microloan, CA,

and 504 Programs 48-hour response

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LINC + Credit Scoring = Game Changer( CA enjoys 20pt. lower threshold than 7(a))


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Small Businesses

• Refer Small Loans• Provide LOC and PRI’s• Award Grants, EQ2s, Fund Loan

Loss Reserves & TA• Participate in CA Loans

Commercial 7(a) Lenders

CA/Microloan Mission Lenders

• Seasoned Borrowers Referred • Earn CRA Credits• Earn Income from CA Participations

(In planning)

LINC $

Foundations, Corp. & Private Funders

Office of Economic OpportunityCommunity Advantage (CA) Microloan Ecosystem

$ $

MISSION LENDER ADVANTAGES•Time•Technical Assistance•Flexibility•SBA Regulated


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Underserved Markets – FYTD (1/31) 7(a) Activity

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Fiscal Year Approved Loans % of # Approved Dollars % of $2015 551 3.0% 136,398,900$ 2.1%2014 430 3.0% 118,683,400$ 2.3%2013 388 2.7% 116,988,800$ 2.2%2012 397 3.0% 87,784,700$ 2.0%2011 636 2.9% 196,095,200$ 2.0%2010 579 3.7% 120,337,900$ 2.7%

Fiscal Year Approved Loans % of # Approved Dollars % of $2015 1,503 8.3% 474,771,400 7.2%2014 1,167 8.3% 306,235,300 5.9%2013 1,173 8.3% 326,047,400 6.1%2012 1,082 8.0% 277,755,400 6.4%2011 1,375 6.3% 454,847,500 4.7%2010 966 6.2% 245,147,800 5.4%

Fiscal Year Approved Loans % of # Approved Dollars % of $2015 2,749 15.2% 1,174,257,700$ 17.9%2014 2,793 19.8% 1,195,970,400$ 23.1%2013 2,975 20.9% 1,296,633,600$ 24.3%2012 2,770 20.6% 1,090,612,600$ 25.0%2011 4,338 19.9% 2,091,228,800$ 21.7%2010 3,185 20.5% 1,130,940,800$ 25.1%


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•SBAONE for Lenders – Similar to a “Turbo Tax-like” experience for an SBA Loan

•Participant Guide 4.0 – To incorporate Policy Notice 5000-1324https://www.sba.gov/sites/default/files/lender_notices/5000-1324.pdf

•Other possible Participant Guide 4.0 issues that have surfaced Modify eligibility to consider total entity, instead of CDFI, CDC or

Microlender Add ILLPP Intermediaries Limit board background check to key members

•You need to be part of the CA Network• Participate as a Lender or a CA Network Partner• Fee Income• Capital for your key vendors• More capital for and in your community• Jobs

A Peek Ahead

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SBSS Credit Score Validation

Summary Results SBA regularly has independent model validations performed to ensure model effectiveness – posted at https://www.sba.gov/for-lenders under working with SBA

In January 2014, FICO completed a validation of SBA’s use of the SBSS underwriting credit score from July 2012-December 2014

The validation showed that SBSS scores were effectively separating performing loans from non performing loans For example: Applicants in the High

Risk group were four times more likely to have an early default then applicants in the Low Risk group

Based on the validation, FICO recommended that SBA continue to use the SBSS score for its portfolio

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Risk Level

SBSS Score Range

Early Default Rate

High Less than 160 6.0%

Medium 160 -< 200 4.0%

Low 200 or more 1.7%


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Current ‘No’s” that could be ‘Yes's’

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Data Used to Justify Credit Scoring for CA Based on Loans Approved by SBA Processing Center

Most CA Loans are above 7(a) Small Loans 140 cutoff and 1 in

5 was not getting approved

CA Lenders get most loans below 140 approved, below 120 was the

big drop off

n=307

n=79 (21% of loans)

Demonstrates the ‘value add’ of our CA Network/LGPC

process

‘No’s” that could be

‘Yes's

Most CA Loans are approved (73%)

Major Findings•We currently approve most CA loan apps., comparable to regular 7 (a)

•By allowing Credit Score and delegation: We could increase approval rates Decrease processing time Lessen lender dissatisfaction

•Mission lender underwriting is working to expand access to credit while managing risk

Documents

Office of Economic Opportunity “Building Success in Underserved Markets” CDFI Coalition The Community Advantage/Microloan Ecosystem: What’s Happening Three