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Get to Know the New Working Capital Pilot Program

For months now we have all heard rumblings of the Working Capital Pilot (WCP) Program that can assist lenders in providing additional working capital options for borrowers. Having taken effect August 1, 2024, we are now approximately one month into the temporary program that unless extended, or made permanent, is scheduled to end on July 31, 2027. Read on to learn more about how the program can be used to benefit your institution and lending clients.

The WCP authorizes lenders to make both asset-based and transaction-based WCP 7(a) lines of credit up to $5,000,000. These facilities can support both domestic and international transactions. Under the pilot, all 7(a) lenders in good standing can provide WCP monitored lines of credit; however, only lenders currently holding PLP-EWCP delegated authority have automatic delegated authority for the WCP lines of credit. Other lenders may apply for delegated authority (PLP-WCP) in accordance with the requirements contained in SOP 50 56 1, Lender Participation Requirements and other WCP-specific guidance. 7(a) lenders with regular PLP delegated authority must be separately approved for PLP-WCP delegated authority.

Working Capital Pilot Snapshot

 

 

Maximum Loan Amount: $5,000,000
Maximum Guaranty: 85% for loans of $150,000 or less; 75% for loans over $150,000
Maximum Term: 60 months (5 years)

WCP Type:

Transaction-Based: Revolving or non-revolving; single or multiple transactions

Asset-Based: Revolving supported by monthly (>$1MM) or quarterly (<=$1MM) BBC
Advance Rates:
Vary based on WCP Type chosen – see SBA Resource Guide for details (link below)
Maximum Interest Rate*:
  • $50,000 or less:  Cannot exceed base rate + 6.5%
  • $50,001 - $250,000: Cannot exceed base rate + 6.0%
  • $250,001 - $350,000: Cannot exceed base rate + 4.5%
  • $350,001 and greater: Cannot exceed base rate + 3.0%
 
*In addition to Prime and Optional Peg Rates allowed for other 7(a) loans, SBA lenders will also be able to use the Secured Overnight Financing Rate (SOFR) + 3.0% as a base rate for the program.
 
Collateral: WCP must be secured by no less than a first security interest in all collateral associated with the transactions financed by the WCP loan. Physical collateral must be located in the United States.
Upfront Guaranty Fee: Modeled on SBA’s Export Working Capital Program which operates as a function of time, charging a proportional amount for each year the facility is in use. Borrower only pays a fee for the time they need and avoids the runup in guaranty fee that typically would occur after the first 12 months. Click here for SBA Fee Notice for FY 2024 and FY 2025.
Eligibility Requirements:
  • Limited to businesses that:
    • Have a history of 12 months of operations prior to filing an application (if supporting an acquisition, the acquiring borrower must have a history of 12 full months of operations).
    • Can produce timely and accurate financial statements, accounts receivable and accounts payable aging’s, and inventory reports.
    • The lender must obtain updated year-end and interim financial statements on the borrower annually and perform a full credit analysis as part of any renewal.
Additional Requirements: SBA Form 2534 – 7(a) Working Capital Pilot Program Addendum to SBA Form 1919
 
Field Examination* required prior to first disbursement on all Asset-Based WCP loans that are $1,000,000 or greater. If => $2,000,000, annual field examination required.
 
*May be conducted by lender’s internal staff or a third-party examiner. An examination is a verification of the assets that compose the borrowing base. Examinations must include a sampling of the assets (receivables and inventory) included in the borrowing base.

 

What makes this program different from the other options currently available?

 

The 7(a) program currently offers four delivery methods for making 7(a) guaranteed lines of credit: SBA Express, CAPLine, Export Express and the EWCP Program. While the existing delivery methods serve a similar working capital function and will remain available, each has its own unique rules and limitations which can be difficult to learn and manage for lenders – for example:
 
  1. SBA Express and Export Express are limited to a maximum loan size of $500,000.
  2. CAPLines and EWCP loans can be approved up to $5,000,000.
  3. CAPLines offer flexibility; however, the four subprograms within CAPLines can be confusing to administer and the fee structure makes these types of loans expensive.
  4. EWCP loan proceeds may only be used to finance export transactions.

 

General questions on WCP can be directed to 7aWCP@sba.gov. In addition, the link below is the list SBA has provided of their Export Finance Managers by state with contact information. They are available to lenders and businesses for assistance on individual transactions, both domestic and international. Export Finance Managers | U.S. Small Business Administration (sba.gov)
 
It is crucial that the lender review the SBA Resource Guide for additional requirements for each specific situation. Click here to view the resource guide located on SBA’s On Demand Training page.

 

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