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When a couple of permanent resident entrepreneurs in North Carolina were working to secure a loan backed by the Small Business Administration (SBA), the process came to an unexpected halt.
The credit had already been approved by a community financial institution. Only the final step remained: for the SBA to issue the federal guarantee under the 7(a) program, a backing that reduces risk for the lender and makes it easier for small businesses without sufficient collateral to access financing.
But before the file could be submitted for that final approval, the SBA announced that, starting in March, it will no longer issue loans to green card holders.
“That change is already having an impact. It’s not even that we’re going to wait until March,” Vania Ramos Ponce, a certified public accountant in North Carolina, told Enlace Latino NC. For the past four years, Ramos Ponce has also worked with organizations, including Community Development Financial Institutions, advising entrepreneurs.
The SBA office responsible for reviewing immigration status, a necessary step before they can issue its guarantee, stopped processing cases around the same time the change in requirements was announced, Ramos Ponce said. The SBA did not respond to a request for comment from Enlace Latino NC before publication.
For the couple Ramos Ponce advises, the loan amount was reduced by approximately 20% so it could be adjusted to move forward without the SBA guarantee. The planned expansion included hiring two employees.
“It was a bridge to expand their business,” she said.
How does 7(a) work and what is changing
The 7(a) program does not lend money directly; the SBA guarantees a portion of the loan issued by a bank or community lender.
Diane Lantz, director of underwriting and portfolio manager at Carolina Community Impact (CCI), told Enlace Latino NC that her organization operates as a lender, providing SBA micro loans, SBA Community Advantage, as well as other small business loans of up to $350,000.
“The loan is approved internally and then sent to the SBA for the guarantee,” she said.
That guarantee reduces risk for the lender and facilitates approval for businesses with limited credit history or little collateral.
The new federal guidance, which takes effect March 1, requires that 100% of the owners of a business applying for a 7(a) loan be U.S. citizens. Permanent residents, or green card holders, will no longer qualify to be part of the applicant ownership.
The new requirement also includes a clause: a six-month retroactive review of the ownership structure, Lantz explained. If during that period there was participation by a noneligible owner, the business could be disqualified.
“I don’t think anyone really knows yet what the full impact will be,” Lantz said. “We’ll probably see a reduction in requests.”
Related: Meet Víctor Aparicio, champion of Latino entrepreneurship recognized by the city of Winston-Salem
A diverse and resilient business community
Latino entrepreneurs represent a significant part of the state’s economic ecosystem. An analysis by the American Immigration Council estimates that immigrants make up about 14.9% of entrepreneurs in North Carolina.
However, not everyone agrees that the change at the SBA will have a broad impact on the Latino community.
José Mora, leader of the Cámara de Comercio Latina de Raleigh, told Enlace Latino NC that within his organization, which brings together about 115 businesses, the SBA’s 7(a) program has not been widely used.
According to Mora, many Latino businesses, from supermarkets and restaurants to service contractors, have primarily relied on private banking, personal capital or reinvested profits.
“I don’t know of a single entrepreneur right now who has called me to complain that they will no longer have access to the SBA,” he said.
For Mora, Latino entrepreneurs tend to adapt. “You find a way. There’s always a way.”
Related: Free business seminars offered in Spanish in Raleigh
More rigorous access to capital
Ramos Ponce said there are other options for small-business owners, but that the change will mean a more rigorous process for these companies.
Through her work with Right to Start, including organizing listening sessions with Latino entrepreneurs in Raleigh, she has found that many family-owned businesses operate organically for years before formalizing accounting and financial processes. When they seek to grow, they face requirements they cannot easily meet.
Without the SBA guarantee, she explained, the risk analysis becomes stricter. Lenders will require stronger financials or more collateral, meaning the loan amount granted, as in the case of her clients, could be reduced for some small business owners.
“One of the main barriers is access to capital,” she said. “With this measure, that barrier becomes even greater.”
Lantz agreed that without federal backing, evaluations return to “the basics”: cash flow, repayment capacity and available guarantees.
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