WASHINGTON – In response to the credit crunch, U.S. Small Business Administration Acting Administrator Sandy K. Baruah last week announced key loan program changes to help the agency’s lending partners increase access to capital for small businesses.

First, the SBA will allow lenders to use the one-month LIBOR interest rate (London Interbank Offered Rate) as the base rate for price certain loans.

Lenders had only been allowed to use prime rates, but in recent months the spread between prime and the LIBOR – which institutions often pay to borrow capital – has shrunk considerable, making SBA lending much less profitable.

“This change will help more small businesses obtain capital to grow their businesses and create new jobs,” Baruah said. “By allowing both rates, SBA is making its programs more flexible, increasing opportunities to access capital and giving both lending partners and small business customers more options to meet their needs.”

The second change allows a new structure for assembling SBA loans into pools for sale in the secondary market. The enhanced flexibility in loan pool structures can help affect profitability and liquidity in the secondary market for SBA-guaranteed loans, the agency said, especially with the current market conditions. Because the average interest rate is used, these pools are easier for institutions to create, thus providing incentives for more investors to bid on these loans.

“The challenge small businesses face today is not the cost of capital, it is access to capital,” said Baruah. “Interest rates are at historically low levels meaning money is inexpensive, yet lenders aren’t lending and borrowers aren’t borrowing. This indicates markets are frozen due to liquidity concerns. This interim final rule is an important step to reenergize the lenders to make SBA-backed loans and will help open the gateway of capital for entrepreneurs.”

“SBA moved quickly on these changes after consulting with small businesses, lending partners and other government agencies,” said Eric R. Zarnikow, SBA’s associate administrator for the Office of Capital Access. “We’re confident these solutions will help free up capital so lenders can continue to make SBA-backed loans.”

By addressing market issues that were impeding the funding streams for both lenders and small businesses, SBA is making capital more available to America’s small businesses. The SBA will be issuing additional technical guidance to lenders in the coming weeks relating to the implementation of these important changes.

Additional information on the SBA rule changes is available at www.regulations.gov. To learn more about SBA’s guaranteed loan programs visit www.sba.gov.