The U.S. Small Business Administration has expanded its definition of “small business” which could give more companies access to SBA loans and greater benefit from the Recovery Act. According to a press release by the SBA, the new definition will make an additional 70,000 business eligible to participate in the 7(a) program (the SBA’s standard loan program through banks). The change is only temporary as it expires September 30, 2010.
Under new guidelines, the net worth of the business and its affiliates can’t be more than $8.5 million (up from $7 million) and net income can’t be more than $3 million. This step was taken due to a current “gap” in traditional commercial lending for this size of business.
The Recovery Act also provides end-around benefits to small business by reducing lender risk through raising the guarantee on loans to 90% (the SBA will repay the lender 90% of the loan value in the case of default). According to the release, the agency has seen a 25% increase in 7(a) loan volume since the stimulus bill was passed, and 450 lenders make loans that had not done so since October 2008.