SBA changes loan program to assist small businesses

The U.S. Small Business Administration (SBA) has announced key loan program changes to help its lending partners increase access to capital for small businesses.

One change is an interim final rule that allows new SBA loans to be made with an alternative base interest rate—the one-month LIBOR rate (London Interbank Offered Rate)—in addition to the prime rate, which was previously allowed. During the past 60 days, the prime rate and LIBOR rate have not returned to their historical relationship, and the mismatch is squeezing SBA lenders out of the lending market because their costs are based on the LIBOR rate.

"The change will help more small businesses obtain capital to grow their businesses and create new jobs," says Sandy Baruah, SBA's acting administrator. "By allowing both rates, SBA is making its programs more flexible, increasing opportunities to access capital and giving both lending partners and small-business customers more options to meet their needs."

Another change involves a new structure for assembling SBA loans into pools for sale in the secondary market. More flexible loan pool structures can help affect profitability and liquidity in the secondary market for SBA guaranteed loans, especially in the current market. Using the average interest rate, these pools are easier to create and provide incentives for more investors to bid on the loans.

"SBA moved quickly on these changes after consulting with small businesses, lending partners and other government agencies," says Eric Zarnikow, SBA's associate administrator for the Office of Capital Access. "We're confident these solutions will help free up capital so lenders can continue to make SBA-backed loans."

Date : 11/19/2008