9 Ways to Support Small Business Lending in Your Community
by Jaidyn Crookston, Kadince
It’s no secret: Small businesses are a crucial part of your community. They create local jobs, keep money in the area, serve local needs, and build community pride. Not to mention, small businesses are an important piece of your bank’s CRA strategy. Unfortunately, not all small businesses receive the financial support they need. According to the 2025 Small Business Loan Statistics And Trends study reported by Forbes, 85% of small businesses experienced financial difficulties in 2021 alone. That number was up by nearly 20% since the study two years prior. Chances are that number has only grown.
Here are some interesting stats about small business lending:
59% of small businesses applied for financing in 2023 (this includes financing beyond the traditional bank loan)
34% of small businesses applied for a bank loan in 2021
Only 31% of small businesses that applied for a loan received full funding
Clearly, the small businesses in your community need support. But what’s stopping these companies from getting the loans they need?
Most small businesses face some (if not all) of these challenges when seeking a traditional loan:
Limited or no credit history
Insufficient collateral
Low revenue or inconsistent cash flow
Thin documentation or informal operations
Strict underwriting criteria
Lack of banking relationships
Bias and discrimination
High fees and complex processes
No microloan (under $50,000) options
These may not sound like problems you can fix, but your bank has a lot more freedom than you may think—especially when the goal is to expand access, build relationships, and strengthen communities. Reducing the complexity of your lending process can make the experience better for everyone, including small businesses seeking a loan and your institution. In this article, we’ll explore some ways your bank can support small businesses and remove the barriers they face. But first, how does small business lending fit into your bank’s CRA strategy?
Small Businesses and the Community Reinvestment Act
Enacted in 1977, the Community Reinvestment Act (CRA) ensures that banks meet the credit needs of everyone in their communities, not just the wealthy or “less risky” individuals/businesses. While we won’t get into the specifics here, just know that every few years, banks are examined based on their lending, service, and investment activities. There is no “secret sauce” to what lets a bank pass this exam, but small businesses play a big role in helping banks earn enough “credit” to score well. Under the CRA, small businesses are defined as any business with less than $1 million in gross annual revenue. And loans to these businesses only count if the loan itself is less than $1 million (larger loans can still be made, but they won’t count under the standard small business lending test). And lending to small businesses in low- and moderate-income (LMI) areas tends to weigh more favorably during CRA exams. The good news? There are plenty of ways your institution can actively support small business lending (and earn CRA credit in the process).
9 Ways to Support Small Business Lending in Your Community
1. Offer small-dollar credit products
For small businesses with limited credit histories, income, and capital, qualifying for a large loan or credit product can be difficult. Your bank can help by offering small-dollar credit products that don’t require extensive resources, like lines of credit, small installment loans, or business credit cards with low limits.
When you provide flexible options now, those small businesses are much more likely to continue banking with you as they grow. If you don’t offer the products they need when they’re small, business owners will be forced to choose another financial institution that does. And once that business goes to a competitor, it will be difficult to win them back.
2. Reduce collateral requirements for small loans
Small businesses—especially those run mainly online—may not have much collateral when seeking financial support. Instead of turning them away, try reducing your collateral requirements for small loans. If the loan is small and made with proper guidelines, your bank shouldn’t incur any additional risk. But that small businesses will greatly appreciate your support and may then come to you when they do have enough collateral for a larger loan.
3. Offer short-term working capital products
Offering short-term working capital products can make a real difference to a small business. These loans are small, flexible, and designed to help cover day-to-day expenses like payroll, rent, inventory, or equipment repairs, all without a small business committing to long-term debt.
A small loan is really all many small businesses need. They aren’t looking for giant loans that will take ages to pay off, but a quick $5k–$15k will help them grow and can establish them as a trusted business in the community.
4. Set clear guidelines
Applying for a loan can be overwhelming and confusing. Especially if your institution’s guidelines are outdated or difficult to understand.
You should do everything you can to make this process as easy for small business owners as possible. Show that you care by making the process simple and providing clear instructions. By setting proper guidelines upfront, the process will be easier for both the business owner (who will know exactly what is required of them) and your team (who will have everything they need without following up).
Try creating some step-by-step checklists, building guidance packets that explain every step, or even offering one-on-one coaching sessions with a loan officer. The clearer the process, the more loan applications you’ll receive, and the more confident those small business owners will be.
5. Create flexible underwriting standards
The word “flexible” may not come to mind when you think of underwriting standards, but that doesn’t mean you can’t adjust the rules to better fit your institution and its goals.
We’re not saying you should throw the “safe and sound loan” handbook out the window. You should still be smart and reasonably sure that the loan applicant can meet your terms and pay back the loan on time. Flexibility in meeting underwriting standards can be helpful for small businesses that are just getting started or need a small loan. Instead of having a minimum credit score requirement, you might ask for alternative proof of responsibility, like payment of rent or electrical bills. You should also give the borrower a chance to explain any derogatory credit they may have. Make a list of acceptable explanations so you can make exceptions fairly and accurately.
By offering a little flexibility, you can make that small business owner’s life a lot easier. And when they are ready for a bigger loan, they’ll likely come right back to you.
6. Provide financial education
Did you know that only 1 in 3 adults understand basic financial concepts?
Banks and credit unions around the country have begun to fill this gap by offering free financial education and technical assistance programs (business coaching, credit counseling, etc.) to community members, students, and small business owners.
Your bank might offer free webinars, lunch-and-learns, presentations, mentorship programs, etc. These programs prepare not only entrepreneurs for lending success, but also your bank. Business owners who understand what they’re doing are much more likely to pay their loan back on time and with little hassle.
If your bank doesn’t have the resources to create your own program, there are plenty of nonprofits and other organizations that have already done the leg work. By partner with one of them, you can support their program, your community, and your own bank.
7. Create targeted programs for minority-owned businesses
Almost all small business owners struggle in some way to grow their business and keep up with finances. But minority-owned small businesses tend to face even greater adversity.
Gender and race bias—whether intentional or accidental—can stop a small business in its tracks before it has the chance to show the community how amazing it is.
Instead of leaving these business owners in the cold, your bank can create Special Purpose Credit Programs for minority entrepreneurs. These programs need to be carefully crafted and designed to satisfy a specific need, but they’re a great way to make a difference.
8. Waive or reduce fees
Loan application or origination fees can be deal-breakers for a small business owner.
Instead of charging the full fee, your bank could waive or reduce fees for anyone who meets specific criteria. Maybe you waive or reduce fees for businesses under a certain revenue amount or for those who attend one of your financial education webinars.
It may not seem like a big deal to you, but to a small business owner needing a loan, a waived or reduced fee could mean the difference between a finished application and an abandoned one.
9. Partner with CDFIs
If originating small loans doesn’t fly with your management team, that doesn’t mean you can’t support small businesses.
Instead, partner with a CDFI who can—and would absolutely love to—give small loans with easy requirements. Community Development Financial Institutions (CDFIs) thrive on giving small loans to small businesses, and you can make a connection that benefits all three parties.
You can even purchase seasoned loans from your local CDFIs.
Sound crazy? Scale Link works with banks all over the country to make this easy. Scale Link itself is a CDFI that bundles microloans from other CDFIs and pools them together for banks to purchase. This empowers CDFIs to grow their impact, and it helps banks support these institutions without the direct risk that comes from giving microloans itself. There really is no excuse to leave those small businesses hanging!
How to track your efforts
Now that you have some ideas on how to support small business lending in your community, you need to ensure that you’re properly tracking your efforts. Not only is it important for your own bank’s records, but this data is crucial for your next CRA exam. Without proper documentation, it may as well not have happened.
There are many ways to track and manage this data, but (we believe) the best way to do so is with Kadince software.
With Kadince, you can:
Import, geocode, map, and categorize all loans
Route potential community development loans through a qualification process
Analyze lending distribution and identify performance gaps
Keep supporting documentation securely tied to each loan
Measure progress toward real-time goals and benchmarks
Hundreds of banks around the country use Kadince to track and manage their CRA data. One CRA Officer even said, “From tracking loan details to swiftly pulling reports across our assessment areas, the Kadince platform gives us confidence in our data that we have never experienced before.”
Ready to boost your CRA credit while helping local businesses thrive? Schedule a demo today.