Your Small Business Empire Awaits: Here's How To Get Nearly Unlimited Funding-6716cd0b08bdd41f5cdb65f5_Oct_22_2024_20_47_04

Forbes

The Small Business Administration has removed the $5 million per borrower cap on its popular 7(a) loan guarantee program. But to take advantage of the change, you’ll need to diversify.  Read the full story on Forbes: https://www.forbes.com/sites/brandonkochkodin/2024/10/18/how-to-now-get-nearly-unlimited-funding-to-build-your-small-business-empire/  Subscribe to FORBES: https://www.youtube.com/user/Forbes?sub_confirmation=1  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript  Stay Connected Forbes newsletters: https://newsletters.editorial.forbes.com Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com  Forbes covers the intersection of entrepreneurship, wealth, technology, business and lifestyle with a focus on people and success.

Transcript

00:00Today on Forbes, how to now get nearly unlimited funding to build your small business empire.

00:08The golden ticket to buy a small business has always been a Small Business Administration

00:12loan, especially the 7A loan.

00:16But thanks to a recent and overlooked rule change, it just got even better, giving ambitious

00:20entrepreneurs a chance to build a diversified collection of small businesses, their own

00:25baby Berkshire Hathaways.

00:27The 7A program was established in the same law that created the Small Business Administration,

00:32also known as the SBA, in 1953.

00:36The SBA provides a 75% guarantee on these loans, reducing the risk for lenders and thereby

00:42encouraging them to fund small businesses.

00:45The money can be used for working capital, equipment, real estate, or even to buy a business.

00:51Business buyers love the SBA's 7A program, not only because it makes more loans available,

00:56but also because of its forgiving collateral requirements.

01:00Most of the time, a personal guarantee from the buyer is enough.

01:04Even better, borrowers often don't need to put much, if any, money down.

01:10Repayment terms can stretch up to 25 years, making it a more affordable option than a

01:14standard bank loan that typically maxes out at just 10 years.

01:19The program has been a clear success.

01:21In fiscal 2024, 70,242 loans were approved, totaling $31.1 billion, with an average loan

01:29size of $443,097.

01:33Now, the total volume of loans issued could skyrocket.

01:38That's because in May 2023, the SBA significantly modified the $5 million cap on total loan

01:45guarantees per business owner.

01:48Previously, borrowers were limited to $5 million in SBA-backed loans, whether for a

01:53single business or spread across multiple ventures.

01:56But the agency revamped this so-called affiliation rule to allow borrowers to take out up to

02:02$5 million per business as long as each business falls into a different subsector of the North

02:08American Industry Classification System, or NAICS.

02:13With 96 subsectors available, this change opens the door for business owners with good

02:17credit and strong track records to expand their reach and diversify.

02:23According to an SBA official, the change was made to, quote, reflect the Small Business

02:27Act's definition of a small business, which states in part that a small business is independently

02:32owned and operated, and which is not dominant in its field of operation.

02:38Before this rule change, the SBA treated any businesses with common ownership as part of

02:43the same, quote, field of operation, regardless of industry.

02:47For example, if someone owned a dry cleaner, a restaurant, and a dental office, they were

02:52all grouped together to determine the total loan size, according to the SBA official.

02:58The change may have brought the SBA's lending criteria better into line with the Small Business

03:02Act, but it was still a dramatic move given that the SBA had been grouping businesses

03:07with common ownership together for seven decades.

03:11Ray Drew, managing director of Winston-Salem, North Carolina-based Truliant Federal Credit

03:16Union and host of the Art of SBA Lending podcast, notes that the SBA has been pushing

03:22lenders to issue smaller loans in an effort to drive business creation in underserved

03:26communities.

03:27Meanwhile, the $5 million loan cap hasn't changed since October 2010, when Congress

03:34increased it from $2 million in the Small Business Jobs Act of 2010.

03:39Drew cautions that just because borrowers can now exceed the cap doesn't mean banks

03:43will hand out million-dollar loans to just anyone.

03:47To qualify for more than $5 million in total financing, potential borrowers will need excellent

03:52credit and a proven track record of success.

03:55After all, the banks still retain 25% of the risk on these loans.

04:00Drew says, quote,

04:02If you want to go out and get five $5 million loans from the SBA, you better be really strong

04:07financially.

04:09The average Joe isn't going to get approved for all of that.

04:13For full coverage, check out Brandon Cocodin's piece on Forbes.com.

04:19This is Kieran Meadows from Forbes.

04:21Thanks for tuning in.

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