SBA to launch new working capital pilot program

The U.S. Small Business Administration (SBA) is set to introduce new government-backed credit lines of up to $5 million for small businesses, aiming to provide more attractive options for both lenders and borrowers. SBA Administrator Isabel Casillas Guzman announced that this working capital pilot program will be launched in the coming months to address ongoing challenges faced by small businesses in securing necessary working capital. This initiative is part of the SBA's broader effort to expand its flagship 7(a) loan program, which saw a significant increase in loan activity last year. The new program aims to simplify access to working capital lines, offering more favorable terms and higher guaranty percentages for lenders, which seems to be the biggest difference in its existing lines of credit products.

New SBA credit line key points

1. Introduction of New Credit Lines: The SBA plans to offer new government-backed credit lines of up to $5 million, designed to be more appealing to lenders and borrowers.

2. Launch Timeline: The working capital pilot program is set to be unveiled in the coming months.

3. Program Objective: The program aims to address the need for working capital among small businesses seeking to expand operations or undertake new projects.

4. Existing SBA Programs: The SBA’s 7(a) loan program provided over 57,000 loans worth $27.5 billion last year, with most loans under $350,000.

5. Challenges with Current Products: Existing products like the SBA Express loan and CapLines had limitations, including lower guaranty percentages at 50% and complex fee structures, leading to less uptake.

6. New Program Features: The new credit lines will have an annual fee, interest rates based on the prime rate plus 3% to 6.5%, and guaranties of 75% for loans over $150,000 and 85% for loans under $150,000.

7. Application Process: Business owners can apply through the SBA’s website or its pre-screening lender platform once the program goes live.

Additionally

• Higher Interest Rate Environment: The program is designed to be an option for more businesses in a high interest rate environment, ensuring affordability and accessibility.

• Purpose of Loans: The credit lines can be used to fund specific projects or as a general working capital, offering flexibility to small business owners.

• SBA's Goal: The overall aim is to reduce reliance on credit cards and other expensive capital sources, providing a more sustainable financial solution for small businesses.