SBA to pilot 7(a) lines of credit against sales or assets to allow loans to more companies

The U.S. Small Business Administration (SBA) recently announced plans to launch a 7(a) Working Capital Pilot (WCP) Program later this year. The program will offer a lines of credit, made by 7(a) lenders and backed by the SBA. It is designed to give greater flexibility than a traditional term loan. This pilot program, according to an SBA press release, will include both a “transaction-based” and “asset-based” model, allowing borrowers to leverage sales or assets to access working capital. Depending on the details of the capital structure that are revealed when the program launches, these models may enable both newer technology companies that have sales but few assets and legacy companies that have assets but insufficient cashflow to invest in new technologies with the opportunity to access financing through SBA’s popular 7(a) vehicle.

The 7(a) Loan Program is SBA’s primary small business financing tool and provide loan guarantees to lenders, which work directly with the borrowers. Working capital is already an allowable use of 7(a) loans, but still generally requires that the lender fully secure the transaction with collateral. According to the press release, the new WCP will follow SBA’s model for its 7(a) Export Working Capital Program, which limits collateral requirements to export-related inventory and allows small businesses to pay the SBA upfront guarantee fee annually.

While the details of the new program are not yet released, the implication of the announcement is that the WCP will allow loans secured by domestic and/or international sales or assets—providing more flexibility for the lender to meet SBA’s requirements and offer a 7(a) loan to a wider variety of companies and capital needs. The press release also indicates that the WCP will help small businesses participating in the Home Energy Rebate Programs funded by the Inflation Reduction Act.

More details will be posted at www.sba.gov when the program launches later this year. One-on-one counseling for lenders will be available from SBA’s team of Export Finance Managers (email 7aWCP@SBA.gov). A list of Export Finance Managers can be found here.