What happened?

In early June, the Small Business Administration (SBA) announced the 7(a) Working Capital Pilot (WCP) Program. This program is designed to provide small businesses with flexible working capital that can be used to cover everyday operational expenses, manage cash flow, and seize growth opportunities.

How is this program unique?

This new program is significant for a few key reasons. Let’s take a look at what those reasons are.

Flexibility

Many traditional loan programs have strict requirements around how the funds can be used. The SBA 7(a) WCP Program, however, can be used for a variety of purposes, such as:

• Inventory purchases
• Payroll and operational expenses
• Marketing

With [the SBA's WCP Program], your business could expand operations and enter new markets, invest in marketing and technology, or just maintain smooth operations during lean periods.

Easier Application Process

Unlike other loan programs that can be difficult and time-consuming to apply for, the WCP Program offers a streamlined and accessible application process. For example, the Working Capital Pilot Program:

• Requires less paperwork
• Offers quicker turnaround times for loan approvals
• Works with a wider network of SBA-approved lenders

Inclusivity

Not all SBA loans are for every small business. In fact, many small businesses don’t qualify for SBA loans at all. That’s where the 7(a) WCP Program can help. This program is designed to work with a broader range of small businesses. It achieves this by:

• Having fewer restrictions around business size, industry, or financial history
• Lowering credit score requirements
• Focusing on minority-owned, women-owned, and veteran-owned businesses

Does your small business qualify for this new program?

So, the 7(a) WCP Program sounds right for your small business. But will your business qualify for access to this working capital? Below is an outline of the eligibility criteria.

At a glance, your business must:

• Operate for profit
• Be considered small as per SBA size standards
• Demonstrate a need for working capital
• Show an ability to repay the loan
• Not be engaged in any prohibited activities as defined by the SBA

Now, let’s look at a few of those in more depth:

Business Type

The 7(a) WCP Program applies only to businesses that operate for profit. However, many different types of for-profit businesses are eligible. For example, retailers, service providers, manufacturers, and wholesalers are just some of the business types that are included. On the other hand, businesses primarily engaged in speculative activities, like lending or investing, will not qualify.

Business Size

The SBA size standards are slightly different across industries, but there are some general ranges for acceptable number of employees and annual receipts. For number of employees, this is typically between 500 and 1,500 employees, and for annual receipts, it’s often between $7.5 million and $38.5 million.

Business Purpose and Use of Funds

In order to demonstrate a need for working capital, your business must be able to provide detailed and convincing documentation that illustrates how the funds will be used and why they are essential for the business's operations and growth. For example, you will need to provide the following:

• Business Plan: Your plan should outline regular payroll, rent, utilities, and other overhead costs, then offer a breakdown of how the working capital proceeds will be allocated across those expenses.
• Financial Statements: You will need to provide up-to-date financial statements, including balance sheets, income statements, and cash flow statements that clearly show your current financial position.
• Supporting Documentation: If you have conducted an analysis of your industry and market conditions, include this as a means for demonstrating how external factors, such as economic downturns or seasonal demands, create a need for additional working capital.

Is the 7(a) Working Capital Pilot (WCP) Program right for your small business?

If the above criteria aligns with your small business, the next step would be to apply for this working capital when the program launches later in this year. That said, you have time to weigh the pros and cons.

On the positive side, the WCP Program offers increased funds that can be used for anything from purchasing inventory to covering payroll. With this financial support, your business could expand operations and enter new markets, invest in marketing and technology, or just maintain smooth operations during lean periods.

On the negative side, applying for the working capital will still take time and effort. Plus, there’s inherent risk in borrowing funds. Before the WCP Program launches, ensure you can dedicate time to the application and have a repayment plan in place.