An Overview of the SBA’s New Working Capital Pilot Program
Last Updated August 5, 2024
If you’re a small business owner, you’re likely going to run into working capital problems. According to the U.S. Chamber of Commerce, a lack of adequate working capital is one of the biggest challenges for small businesses with 77% of owners citing a concerning lack of access to capital.
To combat this issue, the SBA has announced a new Working Capital Pilot (WCP) program, which offers small business owners customizable and affordable lines of credit. The WCP program falls within the 7(a) loan program, the SBA’s primary program.
Benefits of the Working Capital Pilot Program
The flexibility of the WCP program is likely its main benefit. Borrowers will only be charged interest for funds required, and the annual short-term guarantee fee structure means they will be charged for each year the program is utilized.
Borrowers who are already utilizing SBA Express loans will now have access to a loan facility that will grow with their companies and help fund business expansion, which is the most common reason small business owners apply for loans. However, the funds can also be used for a range of business-related activities and expenses, including project financing.
Further, small companies that conduct business across borders will see a benefit. Loan facilities from the 7(a) Working Capital Pilot program will be available to be used for both domestic and international orders. This means that, for these companies, there’s no need to pursue an additional, separate line of credit to access international markets. As always, borrowers can speak with one of the SBA’s Export Finance Managers if assistance is required.
Types of Businesses Best Fit for the 7(a) Working Capital Pilot Program
Not every small business will be an ideal fit for the 7(a) WCP program. The companies that will benefit most are those that are ineligible for traditional forms of financing such as those with a lack of hard assets to use as collateral, poor-to-nonexistent business credit, or insufficient revenue.
Typical qualification determinants like a high credit score won’t be necessary to qualify for this alternative lending option, meaning first-time business owners and startups should take particular interest. Additionally, businesses that constantly see a fluctuation in operating working capital, such as seasonal businesses, can also reap the benefits of this program.
Eligibility Requirements
There are some limitations to the SBA Working Capital Pilot program in that not every small business owner will be eligible.
For example, it will be limited to businesses in operation for at least one year, including those that are using the line to support an acquisition. Credit checks will also be performed during the application phase and each year prior to renewal, so although the minimum credit score might be significantly lower than a standard bank loan, this isn’t a “no credit check loan.”
Still, in comparison to traditional financing options, it’s much more accessible.
| Eligibility Requirements | |
| Must be operational for at least 12 months prior to filling out an application | ☑️ |
| Must be able to produce accurate financial statements, accounts receivable, accounts payable, and inventory aging reports | ☑️ |
| Must provide updated annual financial statements to the lender and submit to an annual credit analysis prior to renewal | ☑️ |
How Does It Compare to Invoice Factoring?
Given that borrowers can borrow against their outstanding accounts receivable using the 7(a) WCP program, it might initially be viewed by some as an alternative to invoice factoring, a popular source of financing for small business owners in need of a quick working capital improvement. Factoring is the process of businesses selling outstanding AR to a third-party factoring company in exchange for an immediate advance (typically within 24 hours) against the value of each factored invoice. The factoring company then assumes responsibility for collections, and once the debtor submits payment to the factor, the remaining funds are released to the business, minus a small factoring fee.
However, the exact fee structures and eligibility requirements between factoring and the 7(a) WCP program will certainly be different, as highlighted by altLINE Business Development Lead, Angelo Standriff.
“The overall availability of factoring and the immediate access to funds will remain an advantage for factoring over this new Working Capital Pilot program,” Standriff said. “Unlike 7(a) WCP, businesses with under a year under their belt can still be eligible for factoring. Though despite that and any other differences, every business has different needs, so this new financing option is altogether a good thing as it’s just another option for SMBs to explore.”
In-Summary: SBA 7(a) Working Capital Pilot Program
While the introduction of the 7(a) WCP program is beneficial in that it’s another potential solution to working capital problems, it still leaves a decision to be made for small business owners regarding which alternative lending option to move forward with. If you find yourself in a position where your business needs a working capital boost, feel free to give us a call at (205) 607-0811 or fill out our free factoring quote form. One of our representatives will gladly assist you in your funding journey.
Michael McCareins is the Content Marketing Associate at altLINE, where he is dedicated to creating and managing optimal content for readers. Following a brief career in media relations, Michael has discovered a passion for content marketing through developing unique, informative content to help audiences better understand ideas and topics such as invoice factoring and A/R financing.
