The U.S. small business administration has two commercial lending programs – the SBA 7(a) loan program and the 504 loan program. Both of the programs fund commercial small business loans. One of the program offers a better deal for small business owners and taxpayers. The US SBA 7(a) loan program and 504 loan program often are found to compete among themselves for small business borrowers.
Both the programs have zero cost to the government and receive support by user fees. They negate the need for a government appropriation. So, it may seem to be duplication. But the fact that remains is that every 7(a) loan that is used to fund a small business project is taken from a pool of money that one can use as a working capital loan for start-ups and emerging new businesses.
The 7(a) program serves a working capital loan source but during the program’s infancy it has been regularly used for commercial small business lending. The 504 program has been launched by the SBA almost 30 years ago and it has a singular focus on small business and equipment financing. The SBA, however, never cancelled 7(a) loans of SME deals.
An intelligent shift in policy draws opposition from the 7(a) lenders as they found a profit-making machine that they don’t want to lose. Significant premiums are offered to such government approved loans as they drive the decision to place small business loans in 7(a) program rather than in the 504. Politicians keep on insisting that the economy’s recovery rests on the shoulders of small business owners. However, entrepreneurs say that financial institutions show constraints in lending ‘working capital loans’.
This article was submitted by Raj Tulshan, Director of Business Development of Biz2Credit. Biz2Credit is a small business marketplace that connects entrepreneurs with financing options and advice to grow their business. Send all questions to firstname.lastname@example.org