The Small Business Administration is trying to make it easier for businesses to qualify for loans through its 7(a) Business Loan Program. SBA issued an interim rule May 5 that will allow companies with average after-tax incomes up to $3 million and tangible net worth up to $8.5 million to receive 7(a) loans through September 30, 2010. The agency estimated that applying the “alternative size standard” used in its 504 Certified Development Company Program to applicants in the 7(a) program would allow an additional 70,000 businesses to qualify for financing guaranteed under its flagship small business loan program.
Small Business Administrator Karen Mills said the agency has “seen signs that small businesses that are just outside the traditional 7(a) size standard are being shut out of the conventional lending market. This temporary change will help those businesses weather these tough times and help move our nation closer to economic recovery.” SBA estimated that about 900 additional loans totaling $450 million could be made to newly eligible businesses.
The temporary rule means businesses meeting the alternative standard do not have to meet industry-specific size limits SBA has set to determine eligibility for guaranteed loans under the 7(a) program. The limits for some industries are based on average annual receipts, while others are based on the size of the company’s workforce.
SBA said the change will make it possible for more businesses to take advantage of reduced fees and higher loan guarantees authorized by the economic stimulus legislation enacted in February. The agency announced March 16 that it would guarantee up to 90 percent of a borrower’s 7(a) loan through the end of 2009 to give banks more confidence and loosen credit standards. In addition, SBA said it would eliminate fees in the 7(a) and 504 programs “through calendar year 2009, or until the funds are exhausted.” SBA said on its website that it has $375 million for the two measures.
Since March 16, the agency said, the average weekly 7(a) loan volume has increased by more than 25 percent, and nearly 450 lenders who had not made loans since October 2008 have issued SBA loans.
The temporary change in the size standard was not authorized by the stimulus legislation—SBA used its administrative authority to issue the rule, according to an agency spokesman. SBA has taken similar steps in the past to help small businesses weather economic storms.
In issuing the interim final rule, SBA asked for input on whether it should make the change permanent. Comments are due by August 3, 2009, and will be posted on the Internet at www.regulations.gov.