WASHINGTON – Borrowers and lenders of loans backed by the Small Business Administration will have greater access to capital and less paperwork as a result of a proposed regulation aimed at streamlining the SBA application process.
The proposal will also strengthen oversight and the integrity of the agency’s loan programs.
“Streamlining and simplifying has been a key focus of our agency over the last few years. The changes are the latest steps to reduce paperwork burden, with our eye on the larger goal of expanding access to capital and giving entrepreneurs and small business owners the financial resources to grow and create jobs,” said SBA Administrator Karen Mills. “Specifically, these proposed regulations will provide greater access to capital through our two largest loan programs, while also reducing risk to taxpayer dollars.”
The SBA proposes the new measures after extensive consultations with lenders and borrowers to identify the greatest challenges they face and find ways to reduce barriers to making and accessing loans, while still maintaining strict oversight.
Among the proposed changes are:
Eliminating the Personal Resource Test
A borrower will no longer be required to obtain a maximum level of personal finance resources for a 504 or 7(a) loan. This will streamline the loan process by eliminating complicated regulations used to determine the amount of collateral required.
The 504 Loan Program provides small businesses with long-term, fixed-rate financing to acquire real estate and major fixed assets for expansion or modernization on a portion of project financing. The 7(a) loan program is SBA’s primary program which guarantees a percentage of a loan up to $5 million. These loans can be used for just about every business purpose.
Revising the Rule on Affiliation
Revising this rule will open access to SBA loans to businesses that, under current rules, would not qualify as a small business under SBA’s size standards by virtue of their association with other companies. It will also streamline 504 loan applications and reduce paperwork requirements for 504 and 7(a) loan applications.
Eliminating the Nine-Month Rule for the 504 Loan Program
Eliminating the Nine-Month rule removes a restriction that limits a business to include in its 504 project only expenses incurred nine months prior to submitting the loan application. The new rule would allow inclusion of expenses incurred at any time (e.g., projects put on hold for more than nine months due to a natural disaster).
Increasing Accountability of the Certified Development Companies’ Board of Directors while Eliminating Requirements for Membership
Refocusing CDC corporate governance requirements will reinforce the importance of board accountability for CDC oversight for the 504 loan program and set in place measures to strengthen oversight in order to maintain program integrity.
For more information about the new rules and benefits, visit http://www.sba.gov/content/revised-oca-regulations-504-and-7a-loan-program.