The U.S. Small Business Administration plans to unveil new government-backed credit lines of up to $5 million for small businesses

The U.S. Small Business Administration (SBA) plans to introduce new government-backed credit lines of up to $5 million for small businesses, according to SBA Administrator Isabel Casillas Guzman in an interview with CNBC.

The SBA is launching a working capital pilot program in the coming months that aims to be more appealing to both lenders and borrowers than the agency’s current offerings, Guzman explained.

“An ongoing challenge for small businesses who are trying to go after that contract, perhaps to help us rebuild infrastructure ... or a manufacturing facility that’s trying to expand its orders, is being able to have working capital to deliver against that,” Guzman said.

This initiative is part of the SBA’s efforts to expand its primary lending program for American small businesses. Through its 7(a) loan program, the SBA provides guarantees to lenders to encourage them to extend loans to small business owners.

Last year, the program supported over 57,000 loans totaling $27.5 billion, a 7% increase from 2022; most of these loans were for less than $350,000.

The SBA's revolving lines of credit have seen “less uptake” from lenders and business owners than anticipated, Guzman noted.

For example, the SBA Express loan offers credit lines of up to $500,000 but with a 50% guarantee, making it less attractive to lenders. Another product, CapLines, had a complicated fee structure that wasn't as affordable, Guzman added.

“This product aims to increase access to a simpler working capital line,” Guzman said. “It combines the best aspects of our various options to create a pilot program to see if we can provide more borrowers with an affordable working capital line, as opposed to relying solely on credit cards or other capital sources.”

The new working capital lines will have an annual fee and maximum interest rates based on the prime rate plus 3% to 6.5%, which would be roughly 12% to 15% today. These lines will allow small business owners to fund specific projects or borrow against their assets.

Loans over $150,000 will have a 75% SBA guarantee, reducing the risk for lenders if customers default. Loans under $150,000 will have an 85% guarantee, the agency said.

“In an environment of higher interest rates, we want to ensure that the SBA is an option for more businesses,” Guzman stated.

Business owners interested in applying when the program goes live should visit the SBA’s website or its pre-screening lender platform, she advised.