Why SBA Wants to Eliminate the “Personal Resource Test”

February 27, 2013

By Bob Coleman
Coleman Report

One of the four proposed SBA rule changes is to eliminate the Personal Resource Test for SBA 7(a) and 504 loans.

The Personal Resource Test requires the lender to certify the borrower does not have excess liquid assets that should be committed to the business.

So why change?

SBA has become concerned, that even borrowers whose principals have significant personal resources may be unable to obtain long-term fixed asset financing from private sources at reasonable rates.

The agency is now questioning whether the existence of personal resources directly correlates to the ability to obtain commercial credit on reasonable terms and is, therefore, rethinking the appropriateness of using personal resources as an indirect means of determining whether credit is available from private sources.

The agency believes it is part of the agency’s core mission regarding the assistance of small businesses to increase access to capital and that a personal resource test does not promote access to capital as it unnecessarily restricts the pool of potential investors for small businesses that participate in both loan programs.

The agency notes that if the personal resources test is eliminated, more robust borrowers will be eligible to participate in the 504 and 7(a) Loan Programs,

Based on the agency’s records, the number of loan approvals dropped by 42% in 1997, the year after the personal resource test was first instituted for the 504 Loan Program.

As the recession has limited access to capital, eliminating the personal resource test would assist small businesses in attracting more types of investors.

What do you think?

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