News Flash: the Small Business Administration has adjusted its CAPLines lending program to address the critical issue of the availability of loans to fund working capital. This is incredibly good news, and addresses a need that I and others have complained about since working capital loans dried up a few years ago.
Some Background: A major challenge for growing businesses is cash flow, especially when a company closes a large order but doesn’t have the resources to fill it. There are plenty of examples – manufacturing companies need raw materials or a service company might need to hire additional workers – but the company simply can’t float the growth itself. Despite a perfectly willing buyer, a company might lose business, which prevents growth (revenue and jobs) and, in some cases, puts the company at risk.
In prior years, before the credit crunch began in 2008, companies could access additional lines of credit with the purchase order or contract as collateral from a bank. However, lenders began to pull back significantly after the housing market bubble burst, forcing even the most credit-worthy companies to look elsewhere for financing. I wrote (complained) about this in a previous blog post that highlighted the abysmal lending record of big banks to small business. To quote myself at the time:
“My hope is that, whatever the SBA does, it happens soon — there are far too many good, successful companies that are being hampered by their inability to find the resources needed to create the jobs that will help jump-start our economy.”
Fortunately, the SBA had already been developing a solution. Announced on Nov. 4, the SBA has re-envisioned the CAPLines lending program, offering high lender guarantees (up to 85 percent), reduced red tape, an increased maximum loan amount ($5 million), a maturity of up to 10 years, and a willingness to allow the borrower to use a contract as collateral. Working through local lenders (for Pittsburgh, a list can be obtained by contacting the local SBA office), the SBA is addressing a major small business need with minimal interference between the bank and the lender.
While there are still many challenges small businesses face, this is a tremendous win for growth companies across the country. The next step is for the private lenders to follow suit.