SBA Loan Changes: Easier Access To Capital For Small Businesses
In an effort to bolster small businesses across the nation, the Small Business Administration (SBA) has introduced a number of significant changes to its loan programs. These changes are geared toward simplifying the application process and widening the avenues through which small businesses can secure capital, as your Fairfax, VA business lawyer could tell you.
Several key changes stand out, including:
- Simplified underwriting for loans under $500,000: SBA lenders now have the autonomy to use their own credit policies for loans under $500,000, versus following stringent SBA underwriting standards. That gives lenders more flexibility to greenlight loans and can make it easier for small businesses to qualify.
- More flexible seller financing options: When buying a business with an SBA loan, buyers need to inject at least 10% equity into the deal. However, a seller note can now qualify as part of the buyer’s equity injection. Additionally, the seller note can go off standby after 24 months instead of waiting until the SBA loan has been paid in full. That gives buyers more maneuverability in managing their financial commitments.
- Eligibility for partial ownership transfers: Previously, 7(a) loans could only be used for full transfers in ownership. Now, they can also be used for partial ownership changes. The expansion comes as a boon for sellers seeking new business partners, investors, or a phased exit strategy.
In addition to the changes mentioned above, the SBA has made a number of other updates, including expanding the number of non-bank lenders that can offer SBA loans and expanding the Community Advantage SBLC license. The Community Advantage program is designed to support mission-driven lenders that serve underserved communities. The SBA has expanded the eligibility criteria for the Community Advantage SBLC license, making it easier for these lenders to participate in the SBA loan program. These changes should give small businesses more options for finding a lender that meets their needs.
Problems In The Past
Small businesses have encountered various difficulties when applying for loans in the past, leading to a more complicated and challenging process. Accessing loans has proven to be challenging for several reasons. One major hurdle is the stringent lending criteria imposed by banks and financial institutions. These criteria typically demand high credit scores, established revenue streams, and significant collateral, making it hard for small businesses to qualify. Additionally, many small businesses lack a comprehensive credit history, making them appear riskier to lenders. This often results in higher interest rates or outright loan denials.
The extensive documentation required during the loan application process can be overwhelming, especially for small business owners who may not have dedicated financial departments. Further, small businesses are often charged higher interest rates due to their perceived risk, substantially increasing the cost of borrowing. Providing sufficient collateral to secure loans can be a challenge for small businesses, limiting their borrowing capacity. Moreover, small business owners may lack awareness of available loan programs and resources, making it difficult to identify suitable lending options.
Learn More About Applying For Loans
Overall, the new rules are expected to make it easier for small businesses to get the financing they need to start, grow, and succeed. If you would like guidance for your small business or would like to learn more about the changes the SBA has made, reach out to Mahdavi, Bacon, Halfhill & Young, PLLC for help today.