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Salt Lake City — The U.S. Small Business Administration (SBA) has published a final rule on the Federal Register that eliminates or revises several requirements for its 7(a) and 504 loan programs. The changes, which will take effect April 21, eliminate the personal resource test for 7(a) loans and the nine-month rule for the 504 loan program.
“As a result of this rule change, we expect to see an increased number of businesses who qualify for SBA-guaranteed funding,” said Cece Mitchell, senior vice president and SBA lending manager for Zions Bank. “This translates to better access to capital for small businesses.”
Mitchell said that previously, the personal resource test adversely affected legitimate small businesses who had received outside support — from venture capital, an angel investor or a family member — and in some cases kept them from obtaining an SBA loan to start or expand their business.
Mitchell said that the change will also eliminate a time-consuming step in the application process, enabling lenders of all sizes to improve the efficiency of their SBA loan product delivery.
7(a) loans are the most common SBA loan and the most flexible. The program offers up to 25-year, fully amortized loans that may be used for most business purposes, including purchasing real estate and equipment or providing working capital.
Previously, under standard 7(a) procedures, as part of the “credit elsewhere” test, SBA required the personal resources of any owner of 20 percent or more of the small business applicant be reviewed. If such personal resources were readily available, SBA required that those resources above a certain amount must be injected into the applicant firm’s financing package to reduce the amount of SBA’s funding.
The SBA has also eliminated the nine-month rule for the 504 loan program, allowing businesses a longer timeframe in which to organize and initiate their small business project.
504 loans generally apply to real estate, but can be used for large equipment purchases. With the 504, the borrower provides 10 percent equity with the remainder split between the bank (50 percent) and a Certified Development Company (40 percent).