The Small Business Administration has removed the $5 million per borrower cap on its popular 7 loan guarantee program. But to take advantage of the change, you’ll need to diversify.he golden ticket to buy a small business has always been a Small Business Administration 7 loan. But thanks to a recent and overlooked rule change, it just got even better, giving ambitious entrepreneurs a chance to build a diversified collection of small businesses–their own baby Berkshire Hathaways.
the $5 million cap on total loan guarantees per business owner. Previously, borrowers were limited to $5 million in SBA-backed loans, whether for a single business or spread across multiple ventures. But the agency revamped this “affiliation rule” to allow borrowers to take out up to $5 million, as long as each business falls into a different subsector of the North American Industry Classification System .
The timing of this adjustment leaves some speculating as to why. One lender suggests this could be partly about optics. Ray Drew, managing director of Winston-Salem, North Carolina-based Truliant Federal Credit Union and host ofpodcast, notes that the SBA has been pushing lenders to issue smaller loans in an effort to drive business creation in underserved communities.
The change caught small business lenders and funding search agents by surprise–so much so, that at first they weren’t sure it was for real or how it would work. Truliant’s Ray Drew, for his part, didn’t really believe it until he got a loan approved for one of his clients that pushed that borrower over the old $5 million cap.
Speer, like others in the small business community, is pleased with the rule change. He notes that more people are looking to buy rather than start businesses, and there's a growing trend of buyers interested in acquiring multiple businesses. While he, along with others, would eventually like to see the $5 million loan cap raised, he views this change as a positive step that’s come at the right time.