WASHINGTON,
DC – In response to the credit crunch, today SBA’s Acting Administrator
Sandy K. Baruah announced important loan program changes to help the agency’s
lending partners increase access to capital for small businesses.
First,
an interim final rule allowing new SBA loans to be made with an alternative base
interest rate, the one month LIBOR rate (London Interbank Offered Rate), in addition
to the prime rate, which was previously allowed. In the past 60 days, both the
prime and LIBOR rates have not yet returned to their historical relationship—of
roughly 300 basis points between the two rates. The mismatch between the rates
is squeezing SBA lenders out of the lending market, since their costs are based
on the LIBOR rate.
"This change will
help more small businesses obtain capital to grow their businesses and create
new jobs," Baruah said. "By allowing both rates, SBA is making its programs
more flexible, increasing opportunities to access capital and giving both lending
partners and small business customers more options to meet their needs."
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, especially with the current
market conditions. Because the average interest rate is used, these pools are
easier for pool assemblers to create, thus providing incentives for more investors
to bid on these loans.
"The challenge
small businesses face today is not the cost of capital, it is access to capital,"
said 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 reenergize the lenders to make SBA-backed loans and
will help open the gateway of capital for entrepreneurs."
"SBA
moved quickly on these changes after consulting with small businesses, lending
partners and other government agencies," said Eric R. Zarnikow, SBA’s
Associate Administrator for the Office of Capital Access. "We’re confident
these solutions will help free up capital so lenders can continue to make SBA-backed
loans."
By addressing market issues that
were impeding the funding streams for both lenders and small businesses, SBA is
making capital more available to America’s small businesses. The SBA will
be issuing additional technical guidance to lenders in the coming weeks relating
to the implementation of these important changes.
For
more information on the interim final rule or to share your comments, visit www.regulations.gov.
To learn more about SBA’s guaranteed loan programs visit
www.sba.gov.
