The Small Business Administration announced today that it had modified guidelines for qualification to its 7(a) loan program in an effort to improve access to capital for auto and RV dealers, among others.
Under the new guidelines, businesses may qualify for an SBA loan if their net worth falls below $8.5 million and their average net income is less than $3 million. Those metrics usually apply to the SBA’s 504 program; the 7(a) program normally qualifies borrowers by revenue or number of employees.
As a result of the change, 70,000 additional small businesses should qualify for SBA loans, though it is unclear what percentage of those would be auto industry-related. Based on “preliminary analysis,” the number of dealerships eligible for the program would double, Brian Deese, economic advisor for President Obama, said during a conference call with reporters this morning.
To be clear, though, funding for which dealerships may qualify under the SBA program would be used for working capital, not for floorplan financing.
Under the SBA program, the government guarantees a portion of the loans made by other lenders, mitigating the risk to the financial institutions and, presumably, making capital easier to access.
The 7(a) program changes go into effect early next week and expire Sept. 30, 2010.
