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How the SBA’s Working Capital Pilot Program is supporting small businesses.

The Small Business Administration (SBA) launched a new program to better support small business borrowers and SBA lenders. The SBA 7(a) Working Capital Pilot Program (WCP) is an asset- or transaction-based revolving line of credit that offers loans up to $5MM with a 75% guaranty. These loans are issued for 12 months and can be submitted for renewal annually. They can be used for asset- or transaction-based lending, standby letters of credit and performance bonds.

WCP loans are short-term loans intended to help cover cash flow gaps in operation cycles. Unlike conventional loans, WCP loans come with no expectation that the customer will be purchasing a significant asset with the funding or even that all the available funds will be used. Customers utilizing WCP loans are primarily looking to cover gaps in their A/R cycle, fund future growth or cover operational expenses.

Because there’s no fixed cost, it can be difficult to determine the amount each customer needs. Sizing the loan is critical due to the program’s fee structure. WCP charges a percentage based on the guaranteed portion of the maximum loan amount – 25 basis points, or 0.25%. For example, if a customer has a $5MM line of credit but only uses $1MM, they will pay a higher fee for funds they never used. This is why it’s critical to work with a bank that has SBA experience and can work closely with customers to help determine the size of loan needed.

WCP lending is available in amounts from $500,000 to $5MM and provides working capital against both domestic and international orders under one loan facility.

“Commerce Bank can do all these things conventionally, but this program is designed for people who might be a little less creditworthy for whatever reason but still need working capital to run their business,” said Ryan Fritz, Senior Manager, Lending Products. This can include companies that haven’t yet built up a large balance sheet with a lot of liquidity. They can also help more mature companies that are in a high growth industry that chews up a lot of working capital, or those companies that have foreign accounts receivable, an area where some banks have been hesitant to provide loans.

Commerce is able to approve and fund loans without prior approval from the SBA, making the process faster and easier for customers, with a timeline comparable to conventional asset-based lending. To be eligible, a business must have a history of at least 12 months of operations and be able to produce timely and accurate financial statements, accounts receivable, accounts payable and inventory reports.

“The letter of credit piece is not something the SBA has previously supported for domestic accounts receivables,” said Fritz. “Sometimes borrowers also need to offer letters of credit to their buyers, which wasn’t accommodated in the past either. Commerce is really excited that we’re going to be able to help people with that.”

To learn more about other SBA lending solutions, please visit our SBA Loans page.

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