SBA Loans
SBA Loans $75,000 - $5,000,00
Assisted Living Facilities, Auto Lube Businesses, Chiropractors,
Construction Loans, Day Care Centers, Franchises, Hotels/Motels,
Nursing Homes, Physicians, Restaurants, Veterinarians, Women-
Owned Businesses, and more...
SBA Loans can be for Property and Non-Property Based Businesses,
although Collateralization of some form is usually present.
WHAT ARE SBA LOANS:
SBA 7(a) Loan
7(a) loans are the most basic and most used type loan of SBA's business loan
programs. Its name comes from section 7(a) of the Small Business Act, which
authorizes the Agency to provide business loans to American small
businesses.
All 7(a) loans are provided by lenders who are called participants because
they participate with SBA in the 7(a) program. Not all lenders choose to
participate.
7(a) loans are only available on a guaranty basis. This means they are
provided by lenders who choose to structure their own loans by SBA's
requirements and who apply and receive a guaranty from SBA on a portion
of this loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA
share the risk that a borrower will not be able to repay the loan in full. The
guaranty is a guaranty against payment default. It does not cover imprudent
decisions by the lender or misrepresentation by the borrower.
Under the guaranty concept, commercial lenders make and administer the
loans. The business applies to a lender for their financing. The lender
decides if they will make the loan internally or if the application has some
weaknesses which, in their opinion, will require an SBA guaranty if the loan
is to be made. The guaranty which SBA provides is only available to the
lender. It assures the lender that in the event the borrower does not repay
their obligation and a payment default occurs, the Government will
reimburse the lender for its loss, up to the percentage of SBA's guaranty.
Under this program, the borrower remains obligated for the full amount
due.
All 7(a) loans which SBA guaranty must meet 7(a) criteria. The business gets
a loan from its lender with a 7(a) structure and the lender gets an SBA
guaranty on a portion or percentage of this loan. Hence the primary
business loan assistance program available to small business from the SBA
is called the 7(a) guaranty loan program.
A key concept of the 7(a) guaranty loan program is that the loan actually
comes from a commercial lender, not the Government. If the lender is not
willing to provide the loan, even if they may be able to get an SBA guaranty,
the Agency can not force the lender to change their mind. Neither can SBA
make the loan by itself because the Agency does not have any money to lend.
Therefore it is paramount that all applicants positively approach the lender
for a loan, and that they know the lenders criteria and requirements as
well as those of the SBA. In order to obtain positive consideration for an
SBA supported loan, the applicant must be both eligible and creditworthy.
WHAT SBA SEEKS IN A LOAN APPLICATION
In order to get a 7(a) loan, the applicant must first be eligible. Repayment
ability from the cash flow of the business is a primary consideration in the
SBA loan decision process but good character, management capability,
collateral, and owner's equity contribution are also important
considerations. All owners of 20 percent or more are required to
personally guarantee SBA loans.
ELIGIBILITY CRITERIA
All applicants must be eligible to be considered for a 7(a) loan. The eligibility
requirements are designed to be as broad as possible in order that this
lending program can accommodate the most diverse variety of small
business financing needs. All businesses that are considered for financing
under SBA’s 7(a) loan program must: meet SBA size standards, be for-profit,
not already have the internal resources (business or personal) to provide
the financing, and be able to demonstrate repayment. Certain variations of
SBA’s 7(a) loan program may also require additional eligibility criteria.
Special purpose programs will identify those additional criteria
Eligibility factors for all 7(a) loans include: size, type of business, use of
proceeds, and the availability of funds from other sources. The following
links will provide more detailed information on these eligibility issues.
SBA must determine if the principals of each applicant firm have historically
shown the willingness and ability to pay their debts and whether they
abided by the laws of their community. The Agency must know if there are
any factors which impact on these issues. Therefore, a "Statement of
Personal History" is obtained from each principal.
OTHER ASPECTS OF THE BASIC 7(a) LOAN PROGRAM
In addition to credit and eligibility criteria, an applicant should be aware of
the general types of terms and conditions they can expect if SBA is involved
in the financial assistance. The specific terms of SBA loans are negotiated
between an applicant and the participating financial institution, subject to
the requirements of SBA. In general, the following provisions apply to all
SBA 7(a) loans. However, certain Loan Programs or Lender Programs vary
from these standards. These variations are indicated for each program.
SBA 504 Program
The CDC 504 (Certified Development Company ) loan program is a long-term
financing tool for economic development within a community. The 504
Program provides growing businesses with long-term, fixed-rate financing
for major fixed assets, such as land and buildings. A Certified Development
Company is a nonprofit corporation set up to contribute to the economic
development of its community. CDCs work with the SBA and private-sector
lenders to provide financing to small businesses.
Typically, a 504 project includes a loan secured with a senior lien from a
private-sector lender covering up to 50 percent of the project cost, a loan
secured with a junior lien from the CDC (backed by a 100 percent SBA-
guaranteed debenture) covering up to 40 percent of the cost, and a
contribution of at least 10 percent equity from the small business being
helped.
Maximum Debenture
The maximum SBA debenture is $1,500,000 when meeting the job creation
criteria or a community development goal. Generally, a business must create
or retain one job for every $50,000 provided by the SBA except for "Small
Manufacturers" which have a $100,000 job creation or retention goal (see
below).
The maximum SBA debenture is $2.0 million when meeting a public policy goal.
The public policy goals are as follows:
*Business district revitalization
*Expansion of exports
*Expansion of minority business development
*Rural development
*Increasing productivity and competitiveness
*Restructuring because of federally mandated standards or policies
*Changes necessitated by federal budget cutbacks
*Expansion of small business concerns owned and controlled by veterans
(especially service-disabled veterans)
*Expansion of small business concerns owned and controlled by women
The maximum debenture for "Small Manufacturers" is $4.0 million. A Small
Manufacturer is defined as a small business concern that has:
1. Its primary business classified in sector 31, 32, or 33 of the North
American Industrial Classification System (NAICS); and
2. All of its production facilities located in the United States.
In order to qualify for a $4 million 504 loan, the Small Manufacturer must 1)
meet the definition of a Small Manufacturer described above, and 2) either (i)
create or retain at least 1 job per $100,000 guaranteed by the SBA [Section
501(d)(1) of the Small Business Investment Act (SBI Act)], or (ii) improve the
economy of the locality or achieve one or more public policy goals [sections
501(d)(2) or (3) of the SBI Act].
WHAT FUNDS MAY BE USED FOR:
Proceeds from 504 loans must be used for fixed asset projects such as:
purchasing land and improvements, including existing buildings, grading,
street improvements, utilities, parking lots and landscaping; construction of
new facilities, or modernizing, renovating or converting existing facilities;
or purchasing long-term machinery and equipment.
The 504 Program cannot be used for working capital or inventory,
consolidating or repaying debt, or refinancing.
TERMS, INTEREST RATES AND FEES:
Interest rates on 504 loans are pegged to an increment above the current
market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10
and 20 years are available. Fees total approximately three (3) percent of the
debenture and may be financed with the loan.
COLLATERAL:
Generally, the project assets being financed are used as collateral.
Personal guaranties of the principal owners are also required.
ELIGIBLE BUSINESSES:
To be eligible, the business must be operated for profit and fall within the
size standards set by the SBA. Under the 504 Program, the business qualifies
as small if it does not have a tangible net worth in excess of $7 million and
does not have an average net income in excess of $2.5 million after taxes for
the preceding two years. Loans cannot be made to businesses engaged in
speculation or investment in rental real estate.
