In addition to developing relationships giving bank managers perspectives on the operational and financial needs of these firms, this approach also provides business opportunities for particular minority firms in the bank's market area. Government Guarantee Programs. The SBA and other government agencies have decided to increase lending to underserved minority groups over the next three years. These agencies guarantee loans to minority small businesses, make subordinated debt investments, help financial institutions self-insure small business loan portfolios, and offer other programs that facilitate bank lending to small businesses. Banks have successfully used these programs strategically to mitigate risks in some loans and expand lending to minority small businesses.
Guarantees allow a bank to rely on cash flow rather than collateral.
Subordinated debt may shore up an otherwise undercapitalized minority small business borrower. In addition, both the guaranteed and non-guaranteed portions of an SBA loan can be sold into the secondary market. Small business owners reported lack of access to information and business development assistance as a major hindrance to obtaining credit. For example, accountants willing to provide services on a small scale are particularly difficult to find, resulting in non-standard financial statements which undermine a banker's confidence in business records. The SBA has made commitments to various organizations to work together in providing financial and technical assistance for African Americans and Hispanics.