SBA Raises Loan Guaranty for Small Deals

In an effort to encourage small loans at a time of credit tightening, the Small Business Administration has increased its loan guaranty to banks for deals under $150,000.

The changes to the SBA’s 7(a) program--its key small-business loan guaranty program--were signed into law at the end of December. A small loan will now be defined as one under $150,000--instead of $100,000--and the maximum government guaranty has been raised from 80% to 85%. The maximum guaranty for loans above $150,000 will remain at 75%.

The changes were contained in budget reauthorization bills that also carved out the agency’s fiscal 2001 appropriation. The SBA--which will change hands under the Bush administration--received $901 million for agency programs, shy of the $1.06 billion it had proposed.

It also will receive $10.4 billion for the 7(a) General Business Loan Guaranty Program, about $1 billion short of its request; $3.75 billion for the 504 Certified Development Company program, which provides small firms with equipment, land and building financing; and $2.7 billion in venture capital assistance to small businesses, including $152 million for New Markets Venture Capital companies.

The New Markets companies will focus on businesses in low- to moderate-income neighborhoods that tend to fall below the radar of most equity financing.

Other changes:

* The maximum dollar amount the SBA can guarantee has been raised from $750,000 to $1 million.

* The size for 7(a) loans was capped, for the first time, at $2 million.

* The 504 program, used by small businesses to finance fixed assets, was changed to raise the maximum size of the SBA portion of the loans from $750,000 to $1 million if the loans meet certain job creation or community development goals. For loans that meet certain public policy goals, the maximum loan size was raised from $1 million to $1.3 million.

* The maximum size for micro-loans was raised from $25,000 to $35,000. If the borrower secures financing from other sources, the combined limit is now $105,000, up from $75,000.