The Agenda for America's Entrepreneurs: Equitable Access to Capital

Publisher: 
Small Business Majority
Date: 
Sat, 04/30/2022

Entrepreneurship is essential to a thriving and equitable economy. Yet, too many of our smallest businesses—especially those owned by people of color, women, rural business owners and other under- resourced communities—face significant hurdles accessing capital from banks and other traditional financial institutions.

The disparity in government-backed capital during the COVID-19 pandemic exacerbated the inequitable economic conditions faced by many small businesses. Traditional lenders had already been moving away from making the small and micro-loans that most businesses need and the Paycheck Protection Program (PPP), especially in its early iteration, failed to deliver financial support to unbanked and underbanked entrepreneurs, thus denying critical support to the businesses that needed it most.

As Main Street rebuilds, we must ensure that long-term, equitable, responsible capital is available to enable all small businesses to not just survive, but thrive. Nontraditional lenders such as community development financial institutions (CDFIs)—mission-driven lenders that support communities left behind by traditional banks—are key partners in this work. And, we must also look to new channels and lending paradigms.

Our policy recommendations include the following:

Promote equitable access to capital

  • Dramatically re-envision and implement a robust small business capital infrastructure, providing more patient and flexible products directed to diverse entrepreneurs. This should include early- stage forgiveness and/or low- or no-early interest loan features combined with long payout schedules. Such loan programs should be backstopped by greater net-positive federal subsidies, the creation of a small business secondary market, and/or participation by the Federal Reserve banking system.

  • Empower and finance the U.S. Small Business Administration (SBA) to expand its programs for smaller loans targeted to small minority- and women-owned businesses, including making the Community Advantage Program permanent.

  • Quadruple SBA lending guarantees, specifically by raising the maximum guaranteed annual loan amounts and loan guarantee percentages.

  • Maintain full funding for the State Small Business Credit Initiative (SSBCI) to ensure that capital and technical assistance reach businesses in under-resourced communities via a proven program that empowers the states to leverage private sector dollars at a 10-to-one ratio.

  • Maintain the expansion of funding for the Treasury Department’s CDFI Fund at $3 billion.

  • Increase the cap on the SBA guarantee to Small Business Investment Companies (SBICs) to $250 million to facilitate more financing opportunities for entrepreneurs.

  • Support the collection of small business demographic information by the Consumer Financial Protection Bureau (CFPB) as mandated by Section 1071 of The Dodd-Frank Act and included in the recently promulgated CFBB rule in order to enable better targeting of capital to the businesses that need it most in under-resourced communities.

  • Ensure entrepreneurs of color and rural small businesses get fair access to capital by ensuring adequate and consistent funding of the Minority Business Development Agency (MBDA), the U.S. Department of Agriculture’s (USDA) business loan program, and other federal programs targeting under-resourced entrepreneurs.

  • Remove barriers on federal small business loan programs for previously incarcerated individuals.

  • Expand the SBA’s lending capability through a direct lending program to increase capital access for traditionally under-resourced communities.

  • Ensure Paycheck Protection Program recipients with loans under $150,000 are not penalized for delays that may occur between the lender and SBA during the forgiveness process.

  • Pass legislation that would create more state banks. Many state banks offer low-interest loans for small businesses. These state banks can help spur economic growth and lead to thriving community banks with higher lending totals.

  • Expand online resources and lending platforms for rural small business owners who have fewer local options. New online platforms that offer responsible lending options could help close the funding gap for these entrepreneurs, assuming issues related to broadband access among rural residents are also addressed.

Ensure transparency and other responsible small business lending practices

  • Pass the Small Business Lending Disclosure and Broker Regulation Act, which would extend federal Truth in Lending Act (TILA) disclosure requirements to small business loans and credit products to protect the most vulnerable small businesses from predatory lending practices. Currently, TILA requires that consumer creditors disclose critical financing information, including annual percentage rate (APR), in a clear and comparable format. However, Congress has yet to extend these disclosure requirements to small business loans and other credit products, leaving these products largely unregulated.

  • In the absence of a federal law, we must work with state lawmakers to pass strong small business lending disclosure standards. California and New York have already taken the lead by passing such laws; other states are considering similar legislation.

  • Prohibit "confessions of judgment" clauses in small business lending agreements whereby borrowers agree in advance to waive their right to contest any dispute with a lender, often costing them their entire savings. This prohibition has been proposed in the bipartisan Small Business Lending Fairness Act.

Promote expanded venture investments for the smallest businesses

  • Direct significant federal funds to public/private venture capital in under-resourced and rural communities, particularly for startup businesses. Currently, most venture capital dollars are invested in businesses that reside in dense communities. Dollars should be invested across diverse regions to reach more under-resourced and rural communities.

  • Support the expansion of equity crowdfunding while maintaining reasonable safeguards that make sense for both small business owners and investors.