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SBA changes to improve credit access
WASHINGTON (11/18/08)—Credit unions and other lending partners of the U.S. Small Business Administration (SBA) will benefit from two recent changes the agency instituted to help increase small business access to capital. First, an interim final rule now allows new SBA loans to be made with an alternative base interest rate. The one-month LIBOR rate may now be used, in addition to the previously allowed prime rate. The SBA announcement explained the need increased rate flexibility this way: “In the past 60 days, both the prime and LIBOR rates have not yet returned to their historical relationship-of roughly 300 basis points between the two rates. “The mismatch between the rates is squeezing SBA lenders out of the lending market, since their costs are based on the LIBOR rate.” The SBA’s second rule change allows a new structure for assembling SBA loans into pools for sale in the secondary market. The SBA maintains that because the average interest rate will now be used, the pools will be easier for pool assemblers to create, thus providing incentives for more investors to bid on these loans. "The challenge small businesses face today is not the cost of capital, it is access to capital," said SBA Acting Administrator Sandy Baruah. Baruah added, “Interest rates are at historically low levels meaning money is inexpensive, yet lenders aren't lending and borrowers aren't borrowing. This indicates markets are frozen due to liquidity concerns. “This interim final rule is an important step to reenergize the lenders to make SBA- backed loans and will help open the gateway of capital for entrepreneurs." The effective date for both changes was Nov. 13.
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