SBA Lifts 7a Lender Moratorium


Small business owners seeking financing should soon have more options from non-traditional lenders, thanks to Small Business Administration changes to its Small Business Lending Company (SBLC) program.

The SBA will lift its existing moratorium on licensing new SBLCs and also make a new type available, the Community Advantage SBLC.

The SBA authorizes lending institutions (banks and others, such as SBLCs) to make its 7 (2) loans. SBLCs are regulated, supervised and examined by the SBA.

Here is an explanation of the changes to come, which will be effective May 12, 2023.

  • Moratorium on licensing new SBLCs lifted. The moratorium had been in place since 1981, and since that time only 14 SBLCs had been licensed. Each year, on average since 1981, each SBLC approved 25 loans.
  • The SBA pilot program called Community Advantage SBLC, which would have expired September 30, 2024, will no longer be a pilot program. As of May 12, 2023 the Community Advantage SBLC will be permanently added to the variety of SBA 7 (a) loan offerings. Community Advantage loans, or CA loans, are part of the U.S. Small Business Administration’s 7 (a) loan program. These loans are designed to provide financing to small businesses in traditionally underserved markets, such as startups, veteran-owned companies and businesses in low-income communities.
  • Requirement for Loan Authorization paperwork will be removed. Currently, SBA approved lenders submit loan application paperwork to the SBA through a portal called the SBA E-tran system. Under current regulations, the lender was also required to separately submit additional loan authorization paperwork. Since the information on those documents was already being submitted via the E-tran system, the SBA is dropping the additional Loan Authorization paperwork, which was duplicate information.

 

What are SBA’s additional requirements for SBLCs?

  • An SBLC may only make loans under section 7(a).
  • An SBLC must be a corporation (profit or non-profit) or a limited liability company or limited partnership.
  • An SBLC must maintain a Brokers Blanket Bond or such other form of coverage as SBA may approve, in a minimum amount of $2,000,000 executed by a surety holding a certificate of authority from the Secretary of the Treasury.

 

What is a 7(a) loan?

The 7(a) Loan Program, SBA’s most common loan program, includes financial help for small businesses with special requirements. This is the best option when real estate is part of a business purchase, but it can also be used for:

  • Short- and long-term working capital
  • Refinance current business debt
  • Purchase furniture, fixtures, and supplies

The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates.

 

Uses for the 7 (a) Loan

Basic uses for the 7(a) loan include:

  • Long- and short-term working capital
  • Revolving funds based on the value of existing inventory and receivables
  • The purchase of equipment, machinery, furniture, fixtures, supplies, or materials
  • The purchase of real estate, including land and buildings
  • The construction a new building or renovation an existing building
  • Establishing a new business or assisting in the acquisition, operation or expansion of an existing business
  • Refinancing existing business debt, under certain conditions

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Lisa Price Lisa Price is a staff writer for Small Business Trends and has been a member of the team for 4 years. She has a B.A. in English with a minor in journalism from Shippensburg State College (Pennsylvania). She is also a freelance writer and previously worked as a newspaper circulation district manager and radio station commercial writer. In 2019, Lisa received the (Pennsylvania) Keystone Award.