Now, in an effort to make lending smaller amounts more appealing to banks, the Small Business Administration has altered the terms of its largest loan program, which backed more than $10.5 billion in borrowing last year. Among the revisions: a simplified fee structure, an increase in the total dollar amount the SBA will guarantee, and an increase in the portion of a loan the SBA will cover if a borrower defaults.
Under the new rules, the SBA will guarantee as much as $1 million of a loan, up from $750,000. And it will guarantee as much as 85% on loans of less than $150,000. Previously, the limit was 80% on debt under $100,000. (On loans above $150,000, the SBA will back as much as 75%.)
But entrepreneurs aren't likely to welcome all of the revisions. At the urging of banks, the SBA for the first time established penalties for the early repayment of small-business loans.
The fees, which are on a sliding scale, apply only to loans with maturities of 15 years or more. A borrower who repays more than 25% of the outstanding balance in the first year will be charged 5% of the amount being repaid early. In the second year of a loan, the fee is 3%, and in the third year, it's 1%. Prepaying a loan after the third year incurs no fee. More information on the SBA's loan programs is available at www.sba.gov. By Julie Fields in New York