In an effort to encourage smaller-dollar-value loans, the Small Business Administration (SBA) recently instituted sweeteners for their two primary loan programs. The SBA has begun waiving the two percent loan guarantee fee they historically charged small business owners with loans of $150k and less.

Growth has continued for larger loans, but has decreased for small-dollar-value loans over the past three years. “It’s the smallest of the small loans that have declined. The number of loans is down, but the dollar amount is up,” said Tony Wilkinson, president and CEO of the National Association of Government Guaranteed Lenders, who represent lenders who specialize in smaller-dollar amount loans.

The two loan programs have done rather well in the past two fiscal years earning over $30 billion in fiscal years 2011 and 2012, but the recession is likely to blame for the decrease in fiscal year 2013. Also, since smaller dollar amount loans are disproportionately  taken out by minorities, women and veterans and are used to fund smaller start-up companies, the hope is that the changes will help to jumpstart the economy by letting these business owners hold on to more of their money — money they can use to pay their utilities, employees or other operating expenses.

“The borrower is able to keep money in their company operating capital, rather than paying the fee,” wrote Cece Mitchell, a senior vice president and SBA lending manager at Zions Bank. She further stated, “The hidden benefit is that the guarantee fee waiver is based on the loan amount, not the size of the borrower. Therefore, many midsize companies will benefit as well.”

Lenders will benefit too. The SBA has reduced their monthly guarantee fee by three-tenths of a percent. “It means we are able to retain interest income to offset our costs of running the program. This breaks down one of the barriers for lenders entering the SBA lending arena,” writes Mitchell.

Another upshot:  the reduction in lender fees will likely attract more lenders, in turn giving small business owners more options while shopping for the best loan terms and rates.

It’s clear to see the changes are a win-win for both borrowers and lenders.


Klein, Karen E. “The SBA Offers Sweeteners to Encourage More Small Loans”. 11/01/2013.