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The U.S. Small Business Administration plans to launch new government-backed lines of credit of up to $5 million for small businesses, SBA Administrator Isabel Casillas Guzman told CNBC.
The SBA will launch 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 telephone interview.
“A constant challenge for small businesses trying to get on this contract, maybe to help us rebuild infrastructure … or for a manufacturing facility trying to expand their contracts, is having the working capital to be able to fulfill the contract,” Guzman said.
The project is part of the SBA's efforts to expand its flagship loan program for American small businesses. Under its 7(a) loan program, the SBA offers guarantees to lenders to encourage them to make loans to small business owners.
The program insured more than 57,000 loans valued at $27.5 billion last year, up 7% from 2022; most of those loans were valued at less than $350,000.
Isabel Guzman, head of the U.S. Small Business Administration (SBA) and nominee for U.S. President Joe Biden, is sworn in during a Senate Committee on Small Business and Entrepreneurship 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 been “less well received” 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 has a complicated fee structure that is not as affordable, Guzman said.
“With this product, we want to increase access to an easier working capital line,” Guzman said. “Basically, we're taking the best of our different options and creating a pilot program to see if we can get more borrowers an affordable working capital line instead of just having them rely on credit cards or other sources of capital,” she said.
The SBA's new working capital lines of credit will carry an annual fee and maximum interest rates based on the prime rate plus 3 to 6.5 percent, which is about 12 to 15 percent today, the agency said. They will allow small business owners to either finance specific projects or borrow against their assets.
Loans over $150,000 are guaranteed 75 percent by the SBA, limiting the losses that lenders face if customers are unable to repay their debts. Loans under $150,000 are guaranteed 85 percent, the agency said.
“In a higher interest rate environment, we want to make sure the SBA is an option for more businesses,” Guzman said.
Business owners who want to apply when the program goes live should visit the SBA's website or its lender pre-screening platform, she said.
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