The U.S. Small Business Association (SBA) has proposed to revise its lending rules for loan programs. The goal of these regulation changes is to expand the accessibility of SBA loan programs and to increase the number of businesses taking advantage of government-guaranteed loans by giving borrowers greater access to capital. The proposed changes are an attempt by both Congress and the administration to expand the SBA’s reach by making more existing businesses eligible for the agency’s programs, to streamline the loan application process and to strengthen the oversight of the agency.
The proposed changes will affect 7(a) and 504 loans, two of the SBA’s most popular loan programs. The 7(a) loan program helps startup and existing small businesses acquire financing for a variety of general business purposes. The 504 loan program provides access to long-term, fixed asset financing for land, buildings or equipment.
Most significantly, the SBA is considering eliminating the agency’s “personal resources test” for borrowers. This rule requires investors with at least a 20 percent stake in a loan applicant to obtain a maximum level of personal finance resources before the company can get a 7(a) or 504 loan. Previously, borrowers have had to show they cannot obtain credit elsewhere before getting a government-backed loan. If this rule change is enacted, company owners will not have to exhaust their personal resources to the same extent as previously required before obtaining an SBA Loan. Although the SBA maintains that personal resources will still play a role in the SBA lending process, and the SBA’s stated goal is to streamline the loan process by eliminating complicated regulations used to determine the amount of personal resources a company’s owners must first put towards obtaining other financing.
In a second big change, the revised rules would eliminate the “Nine-Month Rule” for the 504 lending program which now requires borrowers to include in a capital project only those expenses incurred nine months prior to submitting a loan application. SBA proposes to eliminate this nine month limitation and permit financings of expenses toward a project regardless of when they were incurred.
Additionally, the SBA will relax its affiliation rules, which are meant to ensure that a small-business loan applicant is not in fact controlled by a larger company which is ineligible for SBA financing. According to the SBA, revising this rule will open access to SBA loans to businesses that, under current rules, would not qualify as a small business under SBA’s size standards by virtue of their association with other companies.
In proposing this series of rules changes the SBA is trying to save both lenders and borrowers time and money in the attempt to increase lending activity.
For comprehensive information on the new rules and their benefits, visit