The Small Business Administration Increases Cumulative Loan Cap
Entrepreneurs and small businesses across the United States are set to benefit from an increase in the cumulative loan limit offered by the Small Business Administration (SBA). This decision comes after more than a year of advocacy for higher loan-size limits. An expert in the field, Ohio State Professor Walter Hill, has described these higher limits as “fiscally responsible and, I think, economically necessary.”
Boosting Loan-Size Limits
The SBA has taken a concrete step towards assisting small businesses by allowing the cumulative loan limit to be raised to $10 million. This decision, approved by Administrator Kelly Loeffler, doubles the previous limit of $5 million. This move is expected to significantly benefit entrepreneurs by enabling them to stack loans from the agency’s two biggest programs, the 7(a) program and the 504 credit program.
Impact of Inflation
Since 2010, the cumulative loan limit has remained static at $5 million, prompting questions on the impact of inflation. Tom Pretty, TD Bank SBA Head, posed the question, “What has inflation done since 2010?” He pointed out that adjusting for inflation, the $5 million cap would be equivalent to around $7.5 million or $8 million today.
The New Rule and Its Objectives
The new rule, which allows borrowers to combine $5 million of capital from SBA’s flagship 7(a) program with another $5 million of 504 credit, is scheduled to take effect on July 4. The move is part of the Trump administration’s ongoing effort to double the size limit for 7(a) loans tied to manufacturing projects to $10 million. However, congressional action is required to modify the 7(a) program’s loan-size limit. The House of Representatives has passed the Made in America Manufacturing Finance Act, which aims to do this, but the Senate is yet to give its final vote. For more information on this, you can refer to the source here.
Support for the New Limit
The new limit has been welcomed by bankers, economists, and financial-service-industry trade groups, who have been advocating for expanded SBA size limits. They’ve expressed support for the Made in America Manufacturing Finance Act and have also advocated for raising size limits across the board. This approach is seen as a more straightforward solution to businesses’ growing capital needs than packaging multiple loans together.
Limitations and Future Possibilities
While the new rule marks a significant step forward, its impact has its limits. For instance, professional-services firms and other businesses that don’t have significant investment in real estate or equipment may not benefit as they won’t be able to use the 504 loan. Tom Pretty suggests that increasing the cap for 7(a) loans and having more flexibility in the 7(a) program would be a more beneficial solution for these businesses.
Despite these limitations, the new $10 million cumulative loan cap is a step in the right direction. It’s expected to help a wide range of businesses, especially those requiring working capital along with cash for construction and equipment. This move is empowering job creators, particularly manufacturers, to invest in American workers, rebuild industrial strength, and grow the small business economy.
For more information on this topic, click Here.
