SBA Details New Alternative Loan Criteria


Average  After Tax Income Less Than $3 Million? You May Qualify

Two Methods To Figure Eligibility Now Available

The Small Business Administration today clarified its new guidelines for loan guarantees as they apply to small business such as powersports dealers and manufacturers. The alternate company size standards announced May 1, 2009, apply to motorcycle, ATV, and personal watercraft firms. This updates an earlier post  here with additional information.

The SBA has created a second, more liberal, alternate standard for small businesses that couldn’t qualify for an SBA-backed loan under the original standard.

These are not NEW standards, an SBA spokesman told me, they’re alternative standards designed to expand the program to smaller businesses that have been seriously affected by the current economic downturn.

“Keep in mind,” the SBA’s Mike Stamler told me today, “that we’re not changing old standards to new standards. These are alternate standards that co-exist with the regular standards.” The alternate standards provide a second way for small businesses to qualify.

The regular standards vary across industries. The regular standard for motorcycle, ATV and PWC dealers is $7 million in gross sales, averaged over three years. That’s much lower than those in some other industries. The limit for new auto dealers to qualify, for example, is $29 million in average gross annual sales.

Small businesses operating in the powersports industry now have two ways to qualify for the SBA assistance: the original standard of $7 million in average gross sales, or the recently announced alternate standard that considers net worth and net income after federal taxes.

Under the new alternative standard, a company’s net worth can’t exceed $8.5 million AND its average net income for the last two years after federal income taxes must be less than $3 million.

The SBA’s announcement notes that more than 70,000 additional firms—including auto and RV dealerships and suppliers— could be eligible as a result of the changes.

Remember, the SBA doesn’t actually lend money. It only guarantees the loan made by your friendly local banker. So, you have to get him to approve the loan before the SBA’s recent move will do you any good. And you still have to pay back the loan; the SBA guarantee just makes it easier to get the money, in some cases.

Friday’s change means more small businesses can take advantage of benefits made possible through the Recovery Act. On March 16, the SBA implemented two key provisions of the Recovery Act that raised the guarantee on 7(a) loans to 90% and reduced fees for borrowers. Since then, the agency has seen average weekly 7(a) loan volume increase by more than 25% and new SBA loans made by nearly 450 lenders who had not made loans since October 2008. JD

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