The U.S. Small Business Administration plans to launch new government-backed credit lines of up to $5 million for small enterprises, SBA Administrator Isabel Casillas Guzman stated.
According to Guzman, in a phone interview, the SBA will be introducing a working capital pilot program in the upcoming months that is intended to appeal to lenders and borrowers more than the agency’s current offerings.
“An ongoing challenge for small businesses who are trying to go after that contract, perhaps to help us rebuild infrastructure … or a manufacturing facility that’s trying to expand its orders, is being able to have working capital to deliver against that,” Guzman stated.
The project is a part of the SBA’s endeavors to expand the scope of its premier lending program for small businesses in the United States. The SBA offers lenders guarantees through its 7(a) lending program to entice them to lend money to small business owners.
A 7% increase from 2022, the program supported almost 57,000 loans totaling $27.5 billion last year, with the majority of those loans being for less than $350,000.
However, Guzman said that lenders and business owners have “lesstaken” the SBA’s attempts to offer revolving lines of credit than the agency had planned.
For example, the organization’s SBA Express loan gives credit lines up to $500,000, but it comes with a 50% guarantee, which, according to her, turned off lenders.
According to Guzman, another SBA product known as CapLines had an intricate charge structure and wasn’t as reasonably priced.
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“This product is our aim to increase access to a simpler working capital line,” Guzman stated. “It basically takes the best of our various options to create a pilot program to see if we can get more borrowers an affordable working capital line, versus just a pure reliance on credit cards” or other capital sources, she stated.
According to the agency, the maximum interest rates on the SBA’s new working capital loans will be determined by adding 3% to 6.5% to the prime rate, or around 12% to 15% at the current time. Additionally, there will be an annual charge. They will let small business owners borrow against their assets or fund particular projects.
The SBA will guarantee 75% of loans over $150,000, minimizing the losses that lenders incur in the event that borrowers are unable to repay their obligations. According to the agency, there is an 85% guarantee on loans under $150,000.
“In an environment of higher interest rates, we want to make sure that the SBA is an option for more businesses,” Guzman stated.
According to her, entrepreneurs who are interested in applying when the initiative launches should visit the SBA’s website or pre-screening lending portal.
