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The U.S. Small Business Administration plans to provide new government-backed credit lines of up to $5 million for small businesses, SBA Administrator Isabel Casillas Guzman told CNBC.
The SBA is launching a working capital pilot program in the coming months that is intended to be more attractive to both lenders and borrowers than the agency’s existing products, Guzman said in a telephone interview.
“An ongoing challenge for small businesses trying to fulfill this contract, perhaps to help us rebuild infrastructure… or a manufacturing facility trying to expand their orders, is having working capital to fulfill this contract fulfill,” Guzman said.
The project is part of the SBA’s efforts to expand its flagship lending program for America’s small businesses. Through its 7(a) loan program, the SBA provides guarantees to lenders to encourage them to make loans to small business owners.
The program supported more than 57,000 loans worth $27.5 billion last year, a 7% increase from 2022; Most of these loans were for amounts less than $350,000.
Isabel Guzman, Administrator of the U.S. Small Business Administration (SBA) nominee for U.S. President Joe Biden, is interviewed during a confirmation hearing of the Senate Small Business and Entrepreneurship Committee in Washington, Wednesday, February 3, 2021, DC sworn in.
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But the SBA’s efforts to provide revolving lines of credit have been “less embraced” by lenders and business owners than the agency had hoped, Guzman said.
The agency’s SBA Express Loan, for example, offers lines of credit of up to $500,000, but with a 50 percent guarantee, making it less attractive to lenders, she said. Another SBA product called CapLines had a complicated fee structure that wasn’t as affordable, Guzman said.
“With this product, we want to increase access to a simpler working capital line,” said Guzman. “Fundamentally, we need to leverage the best of our various options to create a pilot program to see if we can provide more borrowers with an affordable line of working capital rather than relying solely on credit cards or other sources of capital,” she said.
The SBA’s new working capital lines will have an annual fee and maximum interest rates based on the prime rate plus 3% to 6.5%, which the agency said would be about 12% to 15% today. They allow small business owners to either finance specific projects or take out loans against their assets.
For loans over $150,000, the SBA provides a 75 percent guarantee, limiting losses incurred by lenders if customers are unable to repay their debts. Loans under $150,000 have an 85% guarantee, the agency said.
“In a higher interest rate environment, we want to ensure that the SBA is an option for more businesses,” Guzman said.
Business owners who want to apply once the program goes live should visit the SBA’s website or its lender prescreening platform, she said.
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2024-06-04 14:14:21
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