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SBA Widening Eligibility for 7(a)


WASHINGTON – The Small Business Administration on Friday unveiled changes to its eligibility requirements that will allow lenders to make government guaranteed loans to a wider range of businesses.

The agency could also soon offer guarantees on a special kind of financing for auto dealers, according to sources.

The SBA said it was aligning its qualification procedures for its flagship 7(a) lending program with its 504 program, which allows banks to determine which businesses are eligible for loans based on their net worth and average net income.

Bankers said the new process will be simpler than the normal 7(a) eligibility test, which involves several variables, including the number of employees a business has and its gross sales. The change is expected to render an additional 70,000 businesses eligible for SBA-backed loans, according to the agency.

One of the areas the Obama administration hopes will benefit from the change is the auto industry, and a press release by the SBA focused on the expanded access to working capital that some RV and car dealers will have after the change.

Sources close to the SBA said the agency is also seeking approval from the Office of Management and Budget to begin guaranteeing floor plan financing. Up to now, floor plan financing-loans that car dealers take out to buy inventory from manufacturers-has been excluded from any sort of SBA guarantee.

Bankers have reported that the SBA has reached out to them to determine whether they would begin doing floor plan financing if the SBA began guaranteeing it. The agency sent a survey to SBA lenders last week asking for information about their interest in the business.

Lynn Ozer, a vice president at Susquehanna Bank, said her SBA lending department had already begun discussing the prospect with Susquehanna’s auto department.

She said the changes in eligibility requirements would be a boost to the bank’s SBA lending program generally.

“We’ve been wanting that forever in 7(a),” Ozer said.

Businesses with an average after-tax net income of $3 million or less over the past two fiscal years and with total net worth of $8.5 million or less will now qualify for 7(a) loans.

So far the change is temporary, slated to last through Sept. 30, 2010.