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SBA to Launch Working Capital Pilot Program

Small Business Administration

The Small Business Administration (SBA) reportedly plans to launch a working capital pilot program that will include government-backed credit lines of up to $5 million.

The pilot program is designed to be attractive to both lenders and borrowers and to provide small businesses with working capital they need to pursue new contracts and expansion, SBA Administrator Isabel Casillas Guzman told CNBC, the media outlet reported Tuesday (June 4).

The SBA’s new working capital lines will have an annual fee and maximum interest rates based on the prime rate plus 3% to 6.5%, according to the report.

The SBA’s existing 7(a) loan program, which provides guaranties to lenders and encourages loans to small businesses, backed 57,000 loans worth $27.5 billion in 2023. Most of those loans were for less than $350,000, the report said.

The agency’s SBA Express loan, which offers credit lines of up to $500,000, has not been as appealing to lenders as the SBA had hoped because it has a 50% guaranty, per the report.

In the new working capital pilot program, loans smaller than $150,000 will have an 85% guaranty and those larger than $150,000 will have a 75% guaranty, according to the report.

“This product is our aim to increase access to a simpler working capital line,” Guzman said in the report.

The pilot program will be launched in the coming months, per the report. When it is live, details will be available on the SBA’s website and its pre-screening lending platform.

PYMNTS Intelligence has estimated that only about 8.5% of small and medium-sized businesses (SMBs) have said that they’d found working capital loans from banks were readily available.

More than half of respondents said coming into 2024 that they would consider tapping new financing. Among those considering new financing, more than 26% would consider using an online lender and about a third would use a large national bank, according to “What’s Next in Credit: Why SMBs Prefer Corporate Credit Cards for Short-Term Financing,” a PYMNTS Intelligence and Cross River collaboration.

In another recent move, the SBA said in March that it launched an enhanced version of its Lender Match tool that connects small business owners with SBA-approved lenders.

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