(This column originally appeared in Entrepreneur)
Key Takeaways
- Scaling back employees, focusing on fraud
- Taking on student loan administration
- Increased emphasis on manufacturing
- Raising fees on loans
- Ending its hardship accommodation program
The Trump Administration has recently announced sweeping changes to the Small Business Administration (SBA) — and many of them could directly affect your business. From staffing cuts to rising loan fees, these shifts may alter how entrepreneurs access funding and support. Below are the five changes I believe will have the greatest impact on my clients — and what you need to know to prepare.
1. Scaling back employees, focusing on fraud
One of the first announcements coming out of the Agency was its plans to reduce its workforce by 43% and focus more on fraud. Despite these cutbacks, SBA Administrator Kelly Loeffler says that core services to the public, including the agency’s loan guarantee and disaster assistance programs, as well as its field and veteran operations, will not be impacted. The agency will be focusing on Covid-era fraud claims that are causing rising defaults and delinquencies, as well as negative cash flow.
“The SBA was created to be a launchpad for America’s small businesses by offering access to capital, which in turn drives job creation, innovation, and a thriving Main Street,” she said in a press release. “Just like the small business owners we support, we must do more with less. We have therefore submitted plans to pursue a strategic restructuring that will realign the agency and its resources with our founding mission. We will return our focus to driving private sector growth and delivering disaster relief with accountability, efficiency, and results.”
Related: How Small Businesses Can Cut Through the Noise and Thrive During Political Transitions
How your business may be impacted:
Over the next year, expect there to be more disruptions and a potential increase in response times as the agency reorganizes. Businesses that may be concerned about the status of their previous loans received, particularly if there could be questions around the financial need, numbers and uses of funds submitted, may want to re-address their risks with legal counsel.
2. Taking on student loan administration
The Trump Administration announced in March that it would be handing over the administration of its roughly $1.6 billion in student loans from the Department of Education to the SBA because of the agency’s already-established infrastructure for issuing and administering disaster recovery loans.
How your business may be impacted:
My concern is that the agency, already facing staffing cuts and a major reorganization, will be hard pressed to take over such a massive loan program in the short term. Doing this could cause even more delays in responses and customer service to small business owners. I’m also not a supporter of inter-mingling the needs of small businesses with student loan recipients, as they’re two very different demographics.
3. Increased emphasis on manufacturing
The SBA is doing its part to increase the country’s manufacturing infrastructure by launching a new Made in America Manufacturing Initiative. The program aims to cut regulations (including a “Red Tape Hotline”), allocate resources from the newly announced Office of Manufacturing and Trade, reduce barriers so that more manufacturers can access certain loan programs for construction, equipment purchases and working capital as well as embarking on a road show tour this year to get feedback from small manufacturers across the country.
How your business may be impacted:
If you’re a small (less than 500-employee) manufacturer, you should attend one of these roadshow events as they near your office and reach out directly to SBA representatives to make them aware of any specific regulations that may be hindering your business so that they can work to help address them. If you’re looking for financing, you should talk to an SBA banker and ask about the newly relaxed rules for accessing capital.
4. Raising fees on loans
In order to “restore the program’s financial integrity” and address its internal cash flow issues, the SBA recently announced an increase in the fees charged to offer some of its more popular loans to small businesses. Effective at the end of March, these new fees, which were limited in the past, will impact all loans and range from .25% to 3%, depending on the program and factors such as the size of the loan and maturity. The SBA will also be increasing its upfront fees charged under its SBA Express and Working Capital loan programs. A complete list of the fees can be found here.
How your business may be impacted:
The fee increase will increase the cost of borrowing for businesses receiving financing under the SBA loan programs, which, when considering that interest rates remain historically high, will add to their challenges of accessing capital. The good news is that the agency is guaranteeing billions of loans through its banker network at very competitive interest rates, and because of this guarantee, they are accessible to more small businesses that otherwise wouldn’t be able to receive them. Loeffler says that these fee increases are being implemented “to protect the future” of these programs.
5. Ending its hardship accommodation program
The SBA’s Hardship Accommodation Plan, or HAP, was implemented to help small business owners meet the payment requirements required by the agency’s Covid Economic Injury Disaster Loan program that was introduced during the pandemic. The program, originally intended to be for six months, was designed to help small business owners pay a fraction of their total payment, but it was extended multiple times, with changing payment requirements. According to a report in BizJournals, businesses with loans under $200,000 were previously able to apply and be approved automatically. The SBA officially ended this program in mid-March and has been in the process of sending affected business owners notifications of its termination. Borrowers with existing hardship accommodation can continue their reduced payments until their current term expires, but automatic renewal is not an option unless future policies reverse the ban.
Related: Revenue is up 40%. Why Am I Still Laying Awake at Night Worrying About Cash Flow?
How your business may be impacted:
Small businesses participating in this program can expect higher payment requirements, which means they’ll have to re-address their cash flow needs to be accommodated. The program did not eliminate interest, but because it deferred payments many business owners will suddenly find themselves required to pay unpaid interest that has accumulated over the past few years under the program will also be due. The SBA has not publicly disclosed how many small businesses would be impacted
