The U.S. Small Business Administration (SBA) announced its plan to launch the 7(a) Working Capital Pilot (“WCP”) Program. The WCP will offer a newly structured line of credit made by 7(a) lenders and backed by the SBA, which is designed to give greater flexibility to lenders compared to a traditional term loan.
The program aims to address the need for working capital among small businesses seeking to expand operations or to undertake new projects. The greater goal of the SBA in launching the WCP is to reduce the reliance on credit cards and other expensive capital sources by small businesses. The asset based WCP loans will provide a more sustainable long-term financial solution for small businesses looking to access capital earlier in the sales cycle.
The WCP will offer credit lines not to exceed $5 million, which will have an annual fee, interest rates based on the prime rate plus 3% to 6.5%, and SBA guaranties of 75% for loans over $150,000 and 85% for loans under $150,000. The WCP is built around a flexible annual SBA upfront guaranty fee that allows small businesses to customize the loan to their individual needs. This fee structure reduces the cost of loans with shorter maturities, allowing a small business to pay the SBA upfront guaranty fee on an annual basis.
The WCP will launch later this year, with more details on the program being posted at www.sba.gov in the near future. The Wagoner Firm will continue to monitor any updates from the SBA regarding the WCP or any of its other lending programs. We remain committed to assisting our clients with any questions or concerns they may have regarding their financial needs.