New Terms for SBA-Backed Loans

The agency is making several changes, including more generous guarantees for the smallest loans

For many entrepreneurs, getting a first bank loan is the toughest of all funding hurdles. That's because lenders are often reluctant to make loans of less than $100,000. Yet such sums are just what many fledgling ventures need.

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

By Julie Fields in New York

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