SBA Revamps Lending Rules

The federal small-business agency is allowing its lenders to offer a choice of interest rates.

By Andrew Leigh | 
 

Looking to ease the impact of the credit crunch on smaller businesses, the Small Business Administration this week unveiled changes to its loan programs aimed at improving access to capital through banks and other government-backed lenders.

Under the new rules, borrowers can now take out loans based on either the prime rate or the London Interbank Offered Rate, known as the LIBOR rate.

Typically, the spread between the prime rate and the LIBOR rate is about 300 basis points, but has grown in recent months as a result of financial market turmoil. Since SBA lender costs are based on the LIBOR rate, the gap is squeezing them out of the market, the agency said.

"By allowing both rates, SBA is making its programs more flexible, increasing opportunities to access capital and giving both lending partners and small business customers more options," Sandy Baruah, the agency's acting administrator, said in a statement.

In an effort to boost loan profitability for investors and unfreeze the credit market, the agency will also allow guaranteed loans to be pooled and resold in the secondary market.

The move comes a week after Sens. John Kerry (D-Mass.) and Chuck Schumer (D-N.Y.) called on the agency to help free up access to capital for small businesses struggling with tighter credit conditions.


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