The popular SBA 7a loan program, which was suspended last week after reaching its $18.75 billion limit for the year, has been renewed. The U.S. House of Representatives approved a bill lifting the SBA’s lending cap for its largest loan guarantee program to a record $23.5 billion. Meanwhile, the Senate also passed it.
The SBA 7a program has been incredibly valuable to entrepreneurs. Under the program, the SBA guarantees for up to 85 percent of the amount of the amount of the loan. This mitigates the risk for lenders, thus making it more attractive for banks to supply funding. Without it, businesses might not have otherwise gotten loans.
According to the SBA web site, businesses use the loans for many purposes:
Provide long-term working capital for operational expenses or to purchase inventory
Short-term working capital, including seasonal financing and exporting
Purchase equipment, machinery, furniture, fixtures, supplies or materials
Buy land or to purchase, build or renovate an existing building
Expand an existing business
Refinance debt (under certain conditions)
7a loans may not be used to reimburse owners for equity or an injection of capital, nor are they allowed for repayment of delinquent taxes or other funds that should be held in trust or escrow.
The SBA's loan programs encourage longer term small business financing. Loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the life of the assets financed with the loan. SBA loans are secured by both business and personal assets until the recovery value equals the amount of the loan.
As with anything involving a government agency, SBA funding requires a lot of paperwork, which can be time consuming. However, the rates are usually attractive and 7a loans are fairly easy to secure. If you need a quick infusion of cash, it is not the funding vehicle for you. However, if you can provide documentation and don’t mind a little bit longer time for approval, the SBA 7a loan might be right for your business.
The fact that so many small companies are willing to borrow and invest in their operations is a good sign for the economy. Renewing the 7a program makes a lot of sense.