In August 2023, the U.S. Small Business Administration (SBA) introduced significant changes to its rules, including the terms and conditions for its programs. The SBA rule changes were meant to expand access to small business loans, modernize lending practices, and improve opportunities for underserved communities.
In this overview, you’ll learn about what rule changes will most likely impact you, including why the changes were made, the goals, and recent data on early impacts.
What is the SBA and how does it help your small business?
The SBA is a federal agency that supports small businesses through accessible loan programs, educational opportunities, and more. The SBA doesn’t make loans directly. Instead, it works with banks, credit unions, and independent lenders – including non-profit lenders called Community Development Financial Institutions (CDFIs) and Certified Development Companies (CDCs) – to make funds available to you.
The SBA gives loan guarantees to lenders to help alleviate some of the risks associated with lending to small businesses. For example, if your business is a startup or in a riskier industry like retail or restaurants, these are seen as high-risk for traditional business loans.
As a borrower, you receive tremendous benefits from SBA loan programs, including affordable interest rates and better loan terms, making them easier for you to repay. The SBA also offers more flexible eligibility and approval criteria, so even if you do not meet all of the criteria for a bank loan, you can still get financing with excellent terms.
How do SBA rule changes help my business?
Before the SBA rule changes, research showed that there were persistent gaps in access to capital, especially if you needed smaller loan amounts, as well as in underserved communities. In addition, the SBA’s lending practices needed modernization to better align with the evolving lending landscape including the growth of financial technology and online lenders.
To address these challenges, the SBA and related experts reviewed the SBA rules to find ways to improve their lending. As a result, the 2023 SBA rule changes were intended to make financing more accessible to you, streamline the lending process, and enhance transparency. Specifically, the SBA rule changes were designed to address longstanding gaps in access to smaller loans (of $150,000 or less) and lending to businesses in underserved areas.
What SBA rule changes have the most potential impact on you?
Understanding the rule changes is important so you can better understand how they can benefit you and your business. Here are the key changes to know:
1. Streamlined application and approval processes
The SBA implemented changes to simplify and speed up the loan application and approval processes, including reduced paperwork, faster processing times, and improved digital tools for loan management.
Impact on you: By making the process more efficient, you’ll be able to secure financing faster and with less hassle. You can expect a more straightforward and faster application and approval process. This is especially beneficial if you’re in urgent need of funds or if you want to leverage time-sensitive opportunities, like increasing staffing and inventory for a holiday season, getting working capital, or purchasing a commercial property for your business.
2. Enhanced flexibility for loan use
The SBA revised the guidelines for how your loan proceeds can be used, including expanded eligibility for certain types of expenditures and increased flexibility in fund distribution.
Impact on you: You can now use SBA loan funds for a wider variety of expenses, such as working capital, equipment purchases, and facility improvements. This increased flexibility allows you to tailor your use of funds to better meet your specific needs and strategic goals.
3. Community Advantage loan programs are made permanent
Before the 2023 rule change, the Community Advantage program was operating as a pilot program set to expire in 2024. Now, it’s a permanent loan program of the SBA.
Impact on you: This SBA loan program offers you a tremendous range of benefits, including more flexible eligibility and approval criteria and excellent terms. This program supports underserved communities, and can be used to fund your startup business.
4. Updates to disaster loan programs
This includes changes to eligibility requirements, application procedures, loan terms, and dollar limits for businesses impacted by natural disasters.
Impact on you: Improving the accessibility and effectiveness of disaster loans helps ensure that if your business is affected, you can recover and rebuild more effectively with quicker access to financial support for recovery efforts.
5. Updated loan eligibility criteria
The SBA revised the eligibility criteria for its loan programs, including the SBA 7(a) and SBA 504 loan programs. Changes include updated size standards and adjustments to eligibility requirements for businesses in certain industries.
Impact on you: Expanding and raising business size and financing limits means that more small businesses with higher financial needs, such as those in manufacturing, can gain access to beneficial SBA loan programs. For example, if your business was previously ineligible for an SBA loan due to size criteria, it may now qualify. This gives you more opportunities to secure financing for growth, expansion, or operational needs.
6. Modifications to loan terms and conditions
The SBA introduced changes to loan terms, including adjustments to interest rates, loan limits, repayment periods, and fees associated with SBA loans.
Impact on you: Lower interest rates and reduced fees can benefit your business, making it easier to manage loan repayments and improving your cash flow. Increased loan limits and flexible repayment terms will help you secure the necessary funds for larger projects or longer-term investments.
What’s the impact of SBA rule changes?
Early data is in and although the changes have been in place for a short time, there are already some positive outcomes.
- Loan size: Early signs demonstrate that the SBA is achieving its goal of making smaller loans available. Data shows that smaller-dollar loans are being approved at a rate nearly double than before the rule changes were made.
- Loans by race and ethnicity: As of September 17, 2024, almost 67,000 SBA 7(a) and SBA 504 loans were made in 2024. For those who responded to SBA surveys (around 51,000 borrowers), about 40% of the loans were made to racial and ethnic minority-owned businesses, with an average loan size of about $437,000. This demonstrates that the rule changes may be contributing to sustained or even increased loan activity due to increasing demand and better access.
As more lenders offer SBA loans, it’s more important than ever to work with the right lender
Here’s another key point about the SBA rule changes – as part of the goal of expanded access, the SBA has allowed more lenders to offer SBA loans. That’s great news for borrowers in many respects, but it also means it’s more important than ever to find the right lender for your business – one who will be a partner in your success today and in the long run.
Pursuit has decades of experience as a small business lender and a resource and ally for small business success. Every day, we support small business owners in New York, New Jersey, Connecticut, Pennsylvania, Illinois, Nevada, and Washington through a range of tailored and beneficial loans.
Contact us today to learn more about how we can help you – and if you’re outside of our service area, try the SBA Lender Match tool to find responsible small business lenders near you.
