New legislation makes SBA loans more attractive

An important element of the recently passed Small Business Jobs and Credit Act of 2010 includes new provisions for loans backed by the Small Business Administration (SBA). These new provisions are the latest in a string of adjustments made by the SBA to help commerce in our country. Highlights of the provisions are:

• Increased Loan Amounts. The new maximum SBA 7(a) and 504 limits have increased from $2 million to $5 million. For manufacturers and specific energy related projects seeking 504 loans, the new maximum is up to $5.5 million. That means more opportunities for larger projects.

• Expanded Eligibility Standards. The act establishes adjusted eligibility standards for both 7(a) and 504 SBA-backed loans. Businesses that have a tangible net worth of no more than $15 million and a two-year average net income of $5 million after federal income tax are now eligible to participate. That means more businesses can take advantage of support from the federal government for their credit needs.

• Increased Max Commitments. The new maximum SBA Express line of credit has been temporarily increased from $350,000 to $1 million. The increase is in effect until Sept. 27. The SBA Express program has a 50 percent SBA guarantee and is primarily used for working capital needs.

The SBA has also introduced a new 7(a) loan process called the Small Loan Advantage designed to increase the number of lower-dollar small business loans. With a streamlined application process for loans up to $250,000, funds can be used for a variety of purposes, including working capital, equipment purchases and real estate.

As our economy begins to recover, we know that the strength of our country is linked to the vitality of small businesses. According to the SBA, small businesses have created 64 percent of private-sector jobs over the past 15 years. And, more than half of Americans either work for or own a small business.

If you’re considering applying for an SBA loan, it is important to understand the changes and how to qualify for a loan. Let’s start with the basics:

An SBA loan guarantee provides flexible loan conditions because the lender takes on less risk than a conventional loan. This loan guarantee is the portion of the loan the SBA will pay back to the lender in the case of default.

Start by visiting your local lending institution – ideally one that is designated as an SBA-Preferred Lender. The Preferred Lender designation is a license for lenders to independently complete an eligibility determination, a credit approval and to close/fund 7(a) loans. For a list of Preferred Lenders in the Valley, contact the SBA Alaska District Office at (907) 271-4022.

With these changes, the SBA continues to be an important channel for small businesses that need access to capital and improved cash flow, whether they are just starting out or looking for the next opportunity. For more information about SBA loan programs and options, visit sba.gov.

Taka Tsukada is Mat-Su Business Banking manager for Wells Fargo. You can reach him at 376-6612 or tsukadat@wellsfargo.com.