Small Business Administration unveils new working capital loan program

By Andy Medici, Pittsburgh Business Times

More details are emerging for the Small Business Administration's new structured line of credit loan program that aims to offer more flexibility to lenders and small-business owners.

The 7(a) Working Capital Pilot Program will use a fee structure similar to the agency’s existing Export Working Capital Program and its SBA Express loans offering, under which there are no fees for loans under a certain amount but gradually scale up as the loan gets larger. The fee structure also changes based on whether the loans are shorter or longer than 12 months.

The line of credit would be extended by existing SBA 7(a) lenders and backed with an SBA guaranty.

LEARN MORE

The agency announced the program in June, but recent filings have disclosed new details on the loan option.

According to the Federal Register, the program will take effect Aug. 1, and will remain in effect through July 31, 2027.

The filing also said the working capital loans may be approved up to $5 million. Lenders making working capital loans $150,000 or less will have an 85% SBA guaranty, and loans greater than $150,000 will have a 75% SBA guaranty.

“Small businesses require working capital through competitively-priced lines of credit to operate efficiently and fund their pursuit of growth opportunities — which is why the SBA is meeting the market needs, especially in a higher interest rate environment, by adding the 7(a) Working Capital Pilot Program to our suite of loan products,” said Administrator Isabel Guzman in a statement announcing the program.

The SBA touted several expected benefits from the new working capital program:

• It will allow small businesses to fund individual projects or orders, enabling access to working capital earlier in the sales cycle.

• Asset-based working capital loans will provide small businesses with a cost-effective way to access working capital against their assets, allowing companies to better manage their cash flow while also supporting supply chain resiliency. 

• Support of both domestic and international sales under one facility.

• A way for small businesses participating in the Home Energy Rebate programs funded by the Inflation Reduction Act to ramp up capacity.

It’s worth noting that the new program is a pilot program, which means it has a limited duration unless made permanent by Congress.

The SBA previously pushed to make its Community Advantage Pilot Program permanent but officially sunsetted that offering in 2023 and instead transferred Community Advantage lenders into its 7(a) program. The SBA Express loan program began as a pilot program before it was made permanent by Congress.

SBA upgrades loan, business programs

The SBA under the Biden administration has been beefing up its loan programs and tweaking its small-business services as part of a wider effort to expand lending to the smallest and most underserved businesses.

Recently, the agency lifted a loan maximum in its 504 loan program for energy efficiency and renewable energy projects.

Before that, it gave its Lender Match tool an improved mobile interface and the ability for owners to view all of their matched lenders in one place to help compare different organizations. The enhanced tool also will verify borrowers and screen for fraud in an effort to streamline the lending process. Additionally, small businesses not matched to lenders will be connected to the SBA’s local network of free advisers.

SBA surety bond guarantees went up on March 18 for the first time since 2013. That means the SBA is now able to guarantee bid, performance, payment and ancillary bonds of up to $9 million for all projects and $14 million for federal contracts — up from $6.5 million and $10 million, respectively. 

The SBA also recently revamped and rebranded its existing 7(j) Management and Technical Assistance Program — now called the Empower to Grow program — which offers customized, one-on-one training and consultation to qualifying small-business owners.

Last year, the agency expanded the number of lenders in its 7(a) loan program for the first time in more than 40 years.

All of those actions are separate from a series of changes the SBA rolled out for its disaster-loan program that dramatically boosted loan sizes and extended deferment periods for homeowners and business owners alike.

Last July, the SBA said it had awarded $169.2 billion in contracts to small businesses in fiscal 2022, an all-time high. The federal government awarded $8.7 billion more to small-business contractors compared to fiscal 2021 and, at 26.5%, it exceeded the Biden administration’s goal of 23% of federal-contract awards going to small businesses.

But the overall number of prime small-business contractors continued to shrink in that time period, with 62,670 in fiscal 2022, down more than 4% from the 65,428 reported in fiscal 2021. While federal-contract spending has been trending upward for years, the number of small businesses receiving prime contract awards has been declining — meaning a larger share of dollars has been going to a smaller pool of businesses. Between fiscal 2010 and fiscal 2021, the number of small businesses receiving government contracts fell from 121,270 to 65,428.