The climate for small business loans in the Boston Metro is about to get warmer, according to the Boston Business Journal. The Small Business Administration (SBA) is preparing for a high volume of financing requests in 2016, after backing a record-breaking $23.6 billion in 7(a) loans during fiscal 2015.
Such was last year’s 7(a) loan demand, that the program exceeded its authorized limits and was temporarily unavailable. Congress quickly approved interim funding to resolve the matter. This year, the SBA budget includes $26.5 billion for 7(a) loan coverage, and Congress has pledged to step in proactively, if loan volume appears to be outpacing authorized limits. In fiscal 2016, 7(a) lending is already ahead of last year’s pace.
7(a) loans are the SBA’s most common loan program, providing financial help for a variety of business needs. Applicants should note that 7(a) loans do not come directly from the SBA. Instead, an authorized SBA lender makes the loan, and the SBA guarantees a large portion of it. Since the SBA provides a guarantee for the majority of the loan, it mitigates the risk of loss to the lender. In turn, lenders can offer financing to business owners who have less-than-stellar credit histories or cash flows.
SBA loans are an important source of business financing, but there is a shortage of lenders; nearly two-thirds of banks do not participate in SBA lending programs. This forces some small businesses into high-cost financing alternatives, which then make profitability and long-term success more difficult. To improve 7(a) loan accessibility, the SBA is eliminating fees on loans under $150,000. It is also streamlining its processes and requirements to make these loans less cumbersome to expedite.
During 2015, SBA 7(a) loan amounts of $150,000 or less increased in volume by 22%. While the SBA guarantees loans that reach up to $5 million, the majority of SBA business loan applications are around the $150,000 mark.
By improving accessibility and increasing authorization limits, the SBA hopes that the 7(a) loan program will make inroads in under-served areas, especially urban cores and rural communities. The 7(a) program is flexible enough to consider most business types and associated financing needs. Business owners who wish to explore 7(a) loan program eligibility requirements can view the details at SBA.gov.
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Jay Nuss
Jay Nuss Realty Group, LLC
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