Los Angeles, CA - Isabella Casillas Guzman, Administrator, U.S. Small Business Administration, looks ... [+]
One of the constant challenges small business owners face is accessing capital, especially through traditional channels. To help meet this need, the U.S. Small Business Administration (SBA) recently announced the upcoming launch of the 7(a) Working Capital Pilot Program. This program will offer a competitively priced line of credit of up to $5 million, designed to meet a gap in financing and give businesses greater flexibility when compared to a term loan.
“Small businesses require working capital through competitively-priced lines of credit to operate efficiently and fund their pursuit of growth opportunities – which is why the SBA is meeting the market needs, especially in a higher interest rate environment, by adding the 7(a) Working Capital Pilot Program to our suite of loan products,” said SBA Administrator Isabel Casillas Guzman.
Small business loans are typically designed to give businesses either a lump sum of working capital or the means to buy property or other assets. However, these term loans require the business to take debt up front and to pay it off in a certain period of time and may have penalties for doing so early. Term loans are not always the best option, especially for short-term financing needs. For example, electricians, plumbers, and other small contractors may only need a line of credit to perform work where payment will be available at the end of the project, but there are few current options that meet that need.
The Working Capital Pilot Program can fill this void because it creates a line of credit product built around a new annual SBA upfront guaranty fee that allows small businesses to customize the loan to their individual needs. This can greatly reduce the cost of loans with shorter maturities. Through the program, small businesses can access a line of credit to fund individual projects or orders. In addition, they can also get asset-based loans that will allow them to borrow working capital against their assets, potentially allowing them to better manage their cash flow.
SBA says the program will launch this year, and complete details on the program soon being posted at www.sba.gov. Lenders interested in the Working Capitol Pilot Program can also receive one-on-one counseling from SBA’s team of export finance managers.
“As the Biden-Harris Administration doubles down on its commitment to help entrepreneurs achieve their American Dreams of business ownership, this newly structured line of credit will empower more small businesses to pursue opportunities from President Biden’s Investing in America agenda, create jobs, and grow their businesses,” said Administrator Guzman.
The Covid-19 pandemic and today’s high interest rate environment have highlighted the need for small businesses to be able to access capital in a way that meets their specific needs. SBA’s Working Capital Pilot has the potential to help give businesses more options.
