Five reasons entrepreneurs should benefit from Small Business Administration program changes

Mon, Jun 3, 2024 (2 a.m.)

Small-business owners have long been our country’s engines of economic development, but they need access to capital to grow. Many entrepreneurs benefit from resources from the U.S. Small Business Administration (SBA), a federal agency that serves small-business owners.  

Each year, the SBA releases a Small Business Profile, which uses economic data to provide demographic statistics. The 2023 profile for the Las Vegas-Henderson-Paradise area shows that 99.2% of businesses are considered small (employing 500 or fewer employees), which means small businesses provide jobs for 41.4% of employees in the region. 

Megan Comfort

Megan Comfort

The SBA offers different loan programs including the 7(a) loan, which is among the most popular because of its versatility. Because the SBA guarantees a portion of each 7(a) loan, banks can mitigate some of the lending risk, allowing more businesses to qualify for funding. SBA loans are subject to credit and SBA approval—so being creditworthy makes it more likely that your loan will be approved.

While many banks participate in SBA lending, a smaller subset of financial institutions are designated by the SBA as preferred lenders. This designation means these institutions have a proven track record in processing and servicing SBA loans. 

As of August 1, 2023, the SBA revised its lending programs to help small-business owners. Here are five major changes that could benefit your business. 

Small loan maximum dollar amount increased to $500,000

The SBA provides various loan programs with different underwriting requirements and the maximum loan amount for SBA is $5 million. However, some companies choose to borrow a smaller amount because a 7(a) small loan can be processed faster than a standard SBA loan. This year, the maximum amount for a 7(a) small loan was raised from $350,000 to $500,000—making it easier for small businesses to access more capital. 

Streamlined underwriting requirements for small and express loans 

Lenders now have greater flexibility in determining applicant creditworthiness for SBA loans under $500,000. This change puts more of the decision-making process into the hands of lenders who understand the applicant’s business and risk factors, which helps them process loan applications more quickly and efficiently. 

Lenders can use any of the following criteria when approving loans of $500,000 or less: the credit score or credit history of the applicant, associates and guarantors; the earnings or cash flow of the applicant; and, when applicable, any equity or collateral of the applicant.

SBA loans may be used to facilitate partial changes of ownership

SBA loans may now be used to pay for the acquisition of a portion of one or more owners’ stakes in the company. Additionally, in cases of partial ownership transfers, the seller is permitted to remain as an owner and involved in the day-to-day business, including as an officer, director, key employee or employee.

This change benefits small businesses that would like the previous owner to remain to help with the transition. This is a common practice for many small businesses in the medical field, for example, which may now leverage the benefits of SBA financing.  

Affiliation change may increase eligibility for SBA lending

Previously, the SBA needed to approve franchisors, which affected lending to franchisees. 

This requirement has been removed and now lenders may directly review and approve franchise relationships. This means a greater number of franchise owners may be eligible to leverage the powerful benefits of SBA loans.  

The personal resource test has been removed

Previously, SBA applicants needed to demonstrate that desired cash could not be obtained from personal resources. The new rule exempts SBA lenders from having to consider the applicant’s personal liquidity during the screening process. Consequently, serial entrepreneurs, who often have deeper resources compared with the average startup founder, can now leverage SBA resources to launch new businesses and create jobs in their communities. 

In a rising interest rate environment, SBA loans are a powerful resource because they often include longer repayment terms and greater flexibility in terms of equity and collateral requirements. Working with an experienced SBA lender can help set your business up for success. 

Megan Comfort is executive vice president/small business manager for Nevada State Bank, a division of Zions Bancorporation, N.A. member FDIC.

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This story appeared in Las Vegas Weekly.

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