Value Buddy转发了
The $5M loan cap for SBA 7(a) loans has not been updated since 2010 when it was raised from $2M. While this increase was significant at the time, the business landscape has changed dramatically over the past 14 years, and the cap no longer reflects the realities of today’s small business economy. Here’s why: In 2011, the median seller's discretionary earnings (SDE) of acquired businesses was $75,495, according to DealStats. By 2024, this number had more than doubled to $157,579. Similarly, data from BizBuySell shows the median sales price of small businesses increased from $152,450 in 2011 to $342,745 in 2024. SBA FOIA data reveals a significant increase in loans hitting the $5M threshold—from just 110 in 2011 to 471 in 2024. This trend suggests borrowers are often forced to supplement SBA loans with pari passu financing, a seller's note, or forgo SBA lending entirely for larger acquisitions. For borrowers, the $5M cap can restrict the ability to secure adequate financing, particularly for working capital needs that are critical to running and scaling a business. The amount of working capital needed and the general cost of doing business have increased drastically since 2010 due to inflation. Businesses above the cap are supposed to “graduate” to conventional lending, but many lack the required financials for larger loans, especially given the higher down payments required in traditional lending. Raising the SBA 7(a) loan cap, potentially to $10M, would align the program with today’s economic realities and inflation-adjusted needs. It would also keep the 7(a) program competitive for small business acquisitions and expansions. Unfortunately, raising the cap requires congressional action, and progress has been slow. But with nearly 500 loans already maxing out annually, it’s clear the demand exists. The SBA 7(a) program is one of the most effective tools for small business growth, and updating its limits would ensure it remains relevant and accessible. cc: Ace McGill Timothy Gbur Ted Leverette The Business Buyer Advocate Max Friar Matt Paul John Soldi Hal Stanton Ryan Kroge, MBA, MSF Nader Hashemian, CFA Matthias Smith
I agree with your analysis, Cameron. Like many government programs, change can lag behind on the ground realities. My only hesitation in raising the limit would be if it had the effect of pushing valuations higher (on account of greater liquidity in the market). What are your thoughts?
I would agree a raise the max loan amount is currently beneficial, but I would limit it to $8mm. I would be cautious in attracting lower middle market equity firms into obtaining SBA loans as that is not how the program should be utilized. Let’s also not forget that, while limited to $5mm per transaction, you can aggregate more that $5mm in SBA debt as a guarantor if you are making acquisitions in different industries with different NAICS codes.
Cameron, here is an idea for an exercise that does interest me but I lack the skills... Analysis of the 4M+ loans since 2011: paid off and still in business same owner, paid off out of business, Paid off as they were sold for much higher value and those that charged off. My gut tells me the % of charge offs of 4m+ loans is fractions of what exist in sub 500k loans. Larger SBA loans would mean larger companies are supported to grow the economy, those companies have larger staffs and pay their far share of taxes as the collection of many workers and the greater buying and selling of stuff. "small business" is sub 500 employees. By ratio a 500 employee company is 50m-100m in revenue and far beyond SBA loan limit and yet they bring the largest stabilizers to localized regions for employment outside of Fortune 500 companies and the government. Odd and fixable gap to say the least.
I agree
I agree! I've been saying this for a while. We need a $10 million cap. Business purchases between $5-10 million are requiring some creativity these days.
Doing Deals Again
2 周I don’t believe it should be increased. Nothing is stopping a lender from doing a loan above $5million besides their fear or risk and maybe more importantly the fact that less of the loan can be sold on the secondary market to achieve immediate income and cash flow. Find another way to get comfortable when it’s that big of a deal.