Office of Economic Opportunity “Building Success in Underserved Markets” CDFI Coalition The Community Advantage/Microloan Ecosystem: What’s Happening Three Years In, Two to Go U.S. Small Business Administration Office of Economic Opportunity February 25, 2013

Office of Economic Opportunity “Building Success in Underserved Markets” 2 Community Advantage by the Numbers Region Lender Applications Lenders Approved Active Lenders # Loans Approved Gross $ Loans Approved # Loans Disbursed Gross $ Loans Disbursed 1(CT,MA,ME,NH,RI,VT) 770 9,943, ,268,200 2(NJ,NY,PR) ,285, ,335,700 3(DC,DE,MD,PA,VA,WV) 841 5,836, ,209,200 4(AL,FL,GA,KY,MS,NC,SC,TN) ,762, ,505,800 5(IL,IN,MI,MN,OH,WI) ,775, ,681,000 6(AR,LA,NM,OK,TX) ,065, ,948,400 7(IA,KS,MO,NE) (CO,MT,ND,SD,UT,WY) 554 7,722, ,282,200 9(AZ,CA,GU,HI,NV) ,652, ,242,700 10(AK,ID,OR,WA) 116 3,177, ,314,500 All Regions0060 1, ,220, ,787,700 Use of Proceeds Proceed $% of $ 03 Inventory / Working Capital $ 59,474,18640% 01 Fixed Asset Purchase $ 52,631,62436% 02 Debt Refinance $ 19,577,95213% 04 Business Acquisition $ 10,436,4747% 05 Other $ 5,325,8814% 90 approved CA Lenders, ~200 locations

Office of Economic Opportunity “Building Success in Underserved Markets” 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 ed 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 3 LINC + Credit Scoring = Game Changer ( CA enjoys 20pt. lower threshold than 7(a))

Office of Economic Opportunity “Building Success in Underserved Markets” 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 Opportunity Community Advantage (CA) Microloan Ecosystem $ $ MISSION LENDER ADVANTAGES Time Technical Assistance Flexibility SBA Regulated

Office of Economic Opportunity “Building Success in Underserved Markets” Underserved Markets – FYTD (1/31) 7(a) Activity 5 Hispanic- owned LMI Black-owned

Office of Economic Opportunity “Building Success in Underserved Markets” SBAONE for Lenders – Similar to a “Turbo Tax-like” experience for an SBA Loan Participant Guide 4.0 – To incorporate Policy Notice 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 6

Office of Economic Opportunity “Building Success in Underserved Markets” SBSS Credit Score Validation Summary Results  SBA regularly has independent model validations performed to ensure model effectiveness – posted at under working with SBAhttps://  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 7 Risk Level SBSS Score Range Early Default Rate High Less than % Medium160 -< % Low200 or more1.7%

Office of Economic Opportunity “Building Success in Underserved Markets” Current ‘No’s” that could be ‘Yes's’ 8 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