Ira L. Black – Corbis | Corbis News | Getty Images
The U.S. Small Business Administration will announce a new government-backed loan facility of up to $5 million for small businesses, SBA Administrator Isabel Casillas Guzman told CNBC.
Guzman said in a phone interview that the SBA will launch a working capital testing program in the coming months that will be more attractive to both lenders and borrowers than the agency’s existing products.
“The continuing challenge for small businesses looking to move forward with that contract, perhaps to help rebuild their infrastructure, or for manufacturing facilities looking to expand their orders, is being able to secure the working capital to counter that. Or not,” Guzman said. Said.
This project is part of the SBA’s efforts to expand its flagship lending program for small businesses in the United States. The SBA provides guarantees to lenders to encourage lending to small business owners through the 7(a) lending program.
The program supported more than 57,000 loans worth $27.5 billion last year, a 7% increase from 2022. Most of those loans were less than $350,000.
Isabel Guzman, U.S. President Joe Biden’s nominee for head of the U.S. Small Business Administration (SBA), speaks during her Senate Small Business and Entrepreneurship Committee confirmation hearing on Wednesday, February 3, 2021 in Washington, DC. take the oath of office.
Bill Leary | Bloomberg | Getty Images
However, the SBA’s efforts to offer revolving lines of credit have had “less acceptance” from lenders and business owners than the SBA had hoped, Guzman said.
For example, the agency’s SBA Express Loan offers a loan limit of up to $500,000, but it comes with a 50% guarantee, making it less attractive to lenders, she said. Another SBA product called CapLines had a complicated pricing structure and was not affordable, Guzman said.
“Our objective with this product is to increase access to simpler working capital lines,” Guzman said. “Essentially, we are looking to create a pilot program to see if we can provide affordable working capital lines to more borrowers, rather than relying purely on credit cards and other sources of funding. We need to make the best of our options,” she said.
The SBA’s new working capital line has an annual fee and maximum interest rate based on the prime rate plus 3% to 6.5%, compared with the current interest rate of approximately 12% to 15%, the agency said. equivalent. This will allow small business owners to finance specific projects or borrow against their assets.
Loans over $150,000 will be guaranteed 75% by the SBA, limiting the loss lenders face if customers are unable to repay their loans. Loans under $150,000 come with an 85% guarantee, the agency said.
“In an environment of higher interest rates, we want to make the SBA an option for more businesses,” Guzman said.
Business owners interested in applying for the program when it launches should visit the SBA’s website or its pre-qualification loan platform, she said.
