U.S. makes more businesses eligible for loans

WASHINGTON (Reuters) - The Obama administration will allow about 70,000 more firms to apply for small business loans guaranteed by the government by temporarily raising size limits for the program, government officials said on Friday.

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The move will provide particular relief to auto and recreational vehicle dealers and suppliers, which were often too big to qualify for such loans, but have been squeezed by a financing collapse as sales have plunged.

The temporary size increase under the Small Business Administration’s 7(a) loan program starts next week and will expire on September 30, 2010.

The SBA’s main loan program for small business limits the size of business by revenues for each industry category.

For auto dealers, the previous limit was based on gross sales of $29 million. Under the temporary change, dealers and other small businesses must have a net worth of less than $8.5 million and net income of less than $3 million.

No more than 25 percent of the 19,000 U.S. franchised dealerships were small enough to access the SBA program under the old standard, but the change will allow more than 50 percent to qualify, said Doug Greenhaus, director environment, health and safety with National Auto Dealers Association.

The association said in a statement that the expansion “should encourage lenders to assist thousands of additional dealers with the liquidity they need to keep their doors open, make payroll and prevent further layoffs, especially in these difficult economic times.”

The temporary standards will also allow larger firms in retail, construction and other sectors to apply for small business loans.

“We have seen signs that small businesses that are just outside the traditional 7(a) size standard are being shut out of the conventional lending market,” said SBA administrator Karen Mills. “This temporary change will help those businesses weather these tough times and help move our nation closer to economic recovery.”

The SBA took similar actions to raise the size limit for guaranteed loans in 1993 as the economy was still recovering from a recession, and again in 2005 as part of a program aimed at helping small businesses recover from the effects of Hurricanes Katrina and Rita.

The expansion is not expected to result in loans exceeding the SBA’s total allocations of about $25 billion for fiscal 2009 because loan demand has declined due to the recession, SBA officials said.

But small businesses will still have to deal with tighter credit conditions.

“Just because someone’s going to be eligible to apply for a loan doesn’t mean they’ll get it,” NADA’s Greenhaus said. “If they’re not creditworthy, they’re not going to get a loan, especially in today’s environment.”