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The U.S. Small Business Administration plans to introduce new government-backed credit lines of up to $5 million for small businesses, SBA Administrator Isabel Casillas Guzmán told CNBC.
The SBA is launching a working capital pilot program in the coming months that is designed to be more attractive to both lenders and borrowers than the agency's existing products, Guzman said in a phone interview.
“A constant challenge for small businesses trying to get that contract, maybe to help us rebuild infrastructure… or a manufacturing facility that's trying to expand their orders, is being able to have working capital to meet that,” Guzman. saying.
The project is part of the SBA's efforts to expand its flagship loan program for American small businesses. Through its 7(a) lending program, the SBA offers 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 over 2022; most of those loans were for less than $350,000.
Isabel Guzmán, U.S. Small Business Administration (SBA) nominee administrator for U.S. President Joe Biden, is sworn in during a Senate Small Business and Entrepreneurship Committee confirmation hearing in Washington, DC, on Wednesday, February 3, 2021.
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But the SBA's efforts to provide revolving lines of credit have had “less take-up” from lenders and business owners than the agency expected, Guzmán said.
The agency's SBA Express loan, for example, offers lines of credit up to $500,000, but with a 50% guarantee, which made it less attractive to lenders, he said. Another SBA product called CapLines had a complicated fee structure that wasn't as affordable, Guzmán said.
“This product is our goal of increasing access to a simpler line of working capital,” said Guzmán. “Basically, it takes the best of our various options to create a pilot program to see if we can get more borrowers into an affordable line of working capital, rather than just relying on credit cards” or other sources of capital, said.
The new SBA working capital lines will have an annual fee and maximum interest rates based on the prime rate plus 3% to 6.5%, which today would be approximately 12% to 15%, according to the agency. They will allow small business owners to finance specific projects or borrow against their assets.
Loans over $150,000 will have a 75% guarantee from the SBA, limiting the losses lenders face if customers are unable to pay their debts. Loans under $150,000 have 85% collateral, the agency said.
“In a higher interest rate environment, we want to make sure the SBA is an option for more businesses,” Guzmán said.
Business owners interested in applying when the program goes live should head to the SBA website or its lender pre-screening platform, he said.
