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Community Express Pilot Program

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U.S. Small Business Administration (SBA).


Notice of short-term extension and termination of the Community Express Pilot Program.


This notice announces the termination of the Community Express Pilot Program following a four month extension to April 30, 2011. As of May 1, 2011, no new Community Express loan applications will be approved. SBA is in the process of replacing this pilot with two new lending initiatives aimed at increasing 7(a) lending in underserved communities which initiatives are expected to be available by April 30, 2011.


The Community Express Pilot Program is extended through April 30, 2011, at which time the pilot program will terminate.

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Grady B. Hedgespeth, Office of Financial Assistance, U.S. Small Business Administration, 409 Third Street, SW., Washington, DC 20416; Telephone (202) 205-6490;

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The Community Express Pilot Program was established in 1999 and was based on the Agency's SBA Express Program. Lenders approved for participation in Community Express are authorized to use the expedited loan processing procedures in place for SBA Express for lending to distressed or underserved markets. In addition, participating lenders must arrange and, when necessary, pay for appropriate management and technical assistance for their Community Express borrowers. To encourage lenders to make these loans, SBA provides its full 75-85 percent guaranty, rather than the 50 percent guaranty the Agency provides under SBA Express. The maximum loan amount under this pilot program is $250,000.

On June 30, 2008, SBA published a notice in the Federal Register to extend the Community Express Pilot Program through September 30, 2008, and to notify the public of SBA's plan to significantly restructure the pilot program effective October 1, 2008. The notice also indicated that the restructured pilot program would be extended through December 31, 2009 (73 FR 36950). On January 5, 2010, SBA announced that to allow time to better evaluate the results of the program changes implemented in October 2008, Start Printed Page 80562the pilot program was extended again through December 31, 2010 (75 FR 473).

SBA has completed its evaluation of Community Express and has determined that the pilot program is not achieving the expected results at a reasonable cost to the taxpayers. When measured against broad program goals, Community Express has had mixed outcomes. The Community Express product has resulted in loans to new businesses, minority businesses and other underserved sectors; however, it has consistently ranked as SBA's highest loss product, even when controlling for loan size, and it has never had widespread acceptance by SBA lenders or good geographical dispersion.

Throughout its history, Community Express has had significantly higher default rates (almost 40% of loans defaulted in certain cohorts) compared with other similarly sized 7(a) loans, which also resulted in higher net losses because most Community Express loans are unsecured. In addition, the difficulty of coordinating and ensuring efficient access to quality management and technical assistance to borrowers resulted in large lenders abandoning the product a few years after its creation. Many commercial lenders may not have been willing or able to efficiently meet SBA's technical assistance delivery and reporting requirements because the provision and reporting of management and technical assistance is not normally part of their lending model. Eventually, less than 5% of SBA's active lenders were using the product and most of the activity was concentrated in a handful of lenders (three lenders comprised approximately 85% of the Community Express loan volume in recent years, one of which has been taken over by the FDIC and is no longer in operation).

SBA's Office of Inspector General (OIG) conducted a thorough review of the Community Express Pilot Program over the span of 14 months resulting in an audit report issued on August 25, 2010. The OIG identified significant issues with the pilot program, including the following: (1) Community Express has not been as effective as other 7(a) loan programs in increasing loans to underserved markets; (2) Community Express has a high cost, which is expected to significantly increase the overall 7(a) program subsidy rate; and (3) the credit scoring practices of the two most active Community Express Lenders have increased program risk. Based on the issues identified above, the central recommendation of the OIG report was that SBA not extend the Community Express Pilot Loan Program in its current form.

For the reasons discussed above, SBA is proposing to replace Community Express with two new 7(a) lending initiatives designed to reach underserved markets more efficiently and effectively and at a lower cost to the taxpayer. Extending Community Express four months will permit SBA time to roll out the new pilot program.

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Authority: 15 U.S.C. 636(a)(25); 13 CFR 120.3.

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Dated: December 16, 2010.

Karen G. Mills,


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[FR Doc. 2010-32095 Filed 12-21-10; 8:45 am]