WASHINGTON, DC – Important changes have been made to help SBA lenders increase access to capital for small businesses.
The first major change permits new SBA loans to be made with an alternative base interest rate, the one month LIBOR rate, in addition to the prime rate, which was previously allowed. In recent months, both the prime and LIBOR rates have not yet returned to their historical relationship of roughly 300 basis points. The change seeks to correct the mismatch between the rates which are apparently squeezing SBA lenders out of the lending market, since their costs are based on the LIBOR rate.
The second change allows a new structure for assembling SBA loans into pools for sale in the secondary market. The enhanced flexibility in loan pool structures can help affect profitability and liquidity in the secondary market for SBA guaranteed loans. In turn, by using the average interest rate loan pools are easier to create, providing more investors with an incentive to bid on these loans.
“The challenge small businesses face today is not the cost of capital, it is access to capital,” said SBA’s Acting Administrator Sandy K. Baruah. “Interest rates are at historically low levels meaning money is inexpensive, yet lenders aren’t lending and borrowers aren’t borrowing. This indicates markets are frozen due to liquidity concerns. This interim final rule is an important step to re-energize the lenders to make SBA-backed loans and will help open the gateway of capital for entrepreneurs.”
To learn more about SBA’s guaranteed loan programs visit www.sba.gov.