As a result of this rule change, we expect to see an increased number of businesses who qualify for SBA-guaranteed funding. —Cece Mitchell
SALT LAKE CITY — Utah entrepreneurs should have improved access to capital following recent modifications to the two main loan programs offered by the U.S. Small Business Administration.
The SBA has published a final rule on the Federal Register that eliminated or revised several requirements for its 7(a) and 504 loan programs. The changes, which take effect on Monday, remove the personal resource test for 7(a) loans and the nine-month rule for the 504 loan program.
The 7(a) loans are the most common SBA funding products and considered the most flexible. The program offers up to 25-year, fully amortized loans that may be used for most business purposes, including purchasing real estate and equipment or providing working capital.
Under previous standard procedures, SBA required that the personal resources of any owner of 20 percent or more of a small business applicant be reviewed. If such personal resources were readily available, SBA required that those resources above a certain amount must be injected into the applicant firm’s financing package to reduce the amount of SBA’s funding. Now those restrictions have been loosened.
The SBA also eliminated the nine-month rule for the 504 loan program, allowing businesses a longer timeframe in which to organize and initiate their small business project.
504 loans generally apply to real estate, but can be used for large equipment purchases as well. With the 504 loan, the borrower is required to provide 10 percent equity with the remainder split between the bank at 50 percent and a certified development company at 40 percent.
“As a result of this rule change, we expect to see an increased number of businesses who qualify for SBA-guaranteed funding,” said Cece Mitchell, senior vice president and SBA lending manager for Zions Bank. “This translates to better access to capital for small businesses."
Mitchell noted that previously the personal resource test adversely affected legitimate small businesses that had received outside support — from venture capital, an angel investor or a family member — and in some cases kept them from obtaining an SBA loan to start or expand their business.
She said that the change would also eliminate a time-consuming step in the application process, enabling lenders of all sizes to improve the efficiency of their SBA loan product delivery.
"That’s important because small businesses are key drivers of economic growth and the principal source of new jobs," Mitchell said.