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*** Finance and Expand a Business Using SBA Loan Programs ***
Click on a program to review the information
SBA 7(A) Loan Guarantee Program
The 7(a) Loan is the most common SBA loan program, and is designed to provide financing for businesses which otherwise might not be eligible through other lending programs. It’s the most flexible loan and can be used for a variety of business purposes. Financing under this program can be guaranteed for a variety of general business purposes. SBA offers multiple variations of the basic 7(a) loan program to accommodate targeted needs. Start-up and existing small businesses can benefit from this loan and can access them through commercial lending institutions.
Loan proceeds can be used for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets.
Lenders: Commercial lending institutions.
SBA 7(A) Loan Size: $25,000 to $2 million
Terms: Up to 25 years for real estate purchase. Up to 10 years for business acquisition. Up to 10 years for franchise start-ups. Repayment terms are generally between five and twenty-five years depending on the life of the assets being financed and the cash needs of the business. Working capital loans (inventory and accounts receivable) should be repaid in five to ten years. The SBA also has short-term loan guarantee programs. Ask your lender or call your local SBA office.
Owner equity: As low as 10% depending on the business.
Interest rates: Vary depending on the lender.
Lender Fees: Loan packaging fee varies with the lender: $1,000 to $5,000 Fee is based on loan size, it is collected at the time of loan submission. (Note: this is not the Consultants Fee) SBA Fee: SBA guaranty fee: 1.70% to 2.60% of the loan amount.
Use of Proceeds: Commercial real estate (purchase, construction, expansion or refinance) Debt consolidation/restructuring Leasehold improvements Machinery, equipment, furniture or fixtures Business acquisitions Start-ups (professional practices, franchises: Motels, Restaurants Gas Stations and C-Stores) Working capital (offered in conjunction with certain other financing) Specialty Trucking Churches Medical Working Capital Loans Commercial Bridge Loans Construction Loans: Funds can be used to cover both construction costs and certain soft costs associated with a project, including the cost of land acquisition, building construction or improvements, and fees for professional services, appraisals, title work, searches, surveys, your lender and the SBA guarantee.
Loans offered through various lenders may not be available in all areas. Credit availability is subject to approval. Loans may be modified based on requirements.
Other Credits Considerations Business must have adequate historic cash flow to cover the proposed debt Business debt to net worth must meet industry averages Borrowers must be actively involved in the day-to-day operation of the business Satisfactory personal credit histories are required for all principles and guarantors No past bankruptcies or felony arrests
For more information from the SBA concerning the 7(a) program: www.sba.gov/financing/sbaloan/7a.htm
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Certified Development Company (CDC), a 504 Loan Program - This program provides long-term, fixed-rate financing to small businesses for the purposes of buying land or equipment. Generally, this loan is used by small businesses requiring “brick and mortar” financing and can be obtained through certified development companies (private, non-profit corporations established to help develop their community or regional economy).
The CDC/504 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. There are about 270 CDCs nationwide. Each CDC covers a specific geographic area.
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.
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.
SBA 504 Loan Size: $250,000 - $4,000,000
Terms: Up to 20 years for real estate Up to 10 years for machinery and equipment
Owner Equity: As low as 10% depending on the business. Personal guaranties of the principal owners are also required.
Interest rates: Vary depending on the lender, and are affected by an increment above the current market rate for five-year and 10_year U.S. Treasury issues with maturities of 10 and 20 years.
Fees: Are typically 3% of the debenture. (These are not the Consultants fees).
Use of Proceeds: Proceeds from 504 loans must be used for fixed asset projects. Purchasing land and buildings. New construction. Renovation of existing facilities. New machinery and equipment. Land and improvements. Property grading. Street improvements. Utilities. Parking lots. Landscaping. Construction of new facilities. Purchasing long-term machinery and equipment. (Note: The 504 Program cannot be used for working capital, inventory, consolidating/repaying debt, or refinancing.)
Maximum 504 Debenture
Job Creation: 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.
Public Policy Goal: 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 businesses owned and controlled by veterans (especially service-disabled veterans). Expansion of small businesses owned and controlled by women.
Small Manufacturers: 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) 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 2. Either: A. Create or retain at least 1 job per $100,000 guaranteed by the SBA B. Improve the economy of the locality or achieve one or more public policy goals.
For more information from the SBA concerning the 504 program: www.sba.gov/financing/sbaloan/cdc504.htm
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Microloan, a 7(m) Loan Program
The Microloan is designed for short-term loans of up to $35,000 to small businesses and non-profit childcare centers for working capital and/or the purchase of inventory, fixtures furniture, machinery and other supplies.
Proceeds cannot be used to pay existing debts or purchase real estate. The SBA makes or guarantees a loan to an intermediary, who in turn, makes the Microloan to the applicant. The Microloan program is available in selected locations in most states. Microloans are provided through designated intermediary non-profit lenders with experience in lending and technical assistance for starting, or expanding a business.
The SBA also offers special assistance and information for Women, Veterans, and Native American-owned small businesses to help in establishing and maturing their businesses. There are specialty loans and grants available to minority groups and the SBA can help direct you to those resources.
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Allows business applicants to have their loan applications for $250,000 or less analyzed and potentially sanctioned by the SBA before they are taken to lenders for consideration. The program focuses on the applicant’s character, credit, experience and reliability rather than assets.
An SBA-designated intermediary works with the business owner to review and strengthen the loan application. The review is based on key financial ratios, credit and business history, and the loan-request terms. The program is administered by the SBA’s Office of Field Operations and SBA district offices.
For more information from the SBA concerning the Pre Qualification Program: www.sba.gov/financing/sbaloan/prequalification.htm
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Home and Personal Property Disaster Loans
If you are in a declared disaster area and are the victim of a disaster, you may be eligible for financial assistance from the SBA even if you don't own a business. As a homeowner, renter and/or personal-property owner, you may apply to the SBA for a loan to help you recover from a disaster.
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Physical Disaster Business Loans
If your business has suffered physical damage, or suffered substantial economic injury regardless of physical damage, as a result of a disaster, you may be eligible for financial assistance from the SBA.
Any business that is located in a declared disaster area and has incurred damage during the disaster may apply for a loan to help repair or replace damaged property to its pre disaster condition. The SBA makes physical disaster loans of up to $1.5 million to qualified businesses. Economic Injury Disaster Loans For Small Businesses
Small businesses and small agricultural cooperatives that have suffered substantial economic injury resulting from a physical disaster or an agricultural production disaster designated by the Secretary of Agriculture may be eligible for the SBA's Economic Injury Disaster Loan Program.
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Military Reservist Economic Injury Disaster Loan Program
Filing Period for small businesses to apply for economic injury loan assistance begins on the date the essential employee is ordered to active duty and ends on the date 90 days after the essential employee is discharged or released from active duty.
(NOTE: This program applies to military conflicts occurring or ending on or after March 24, 1999)
The purpose of the Military Reservist Economic Injury Disaster Loan program (MREIDL) is to provide funds to eligible small businesses to meet its ordinary and necessary operating expenses that it could have met, but is unable to meet, because an essential employee was "called-up" to active duty in their role as a military reservist. These loans are intended only to provide the amount of working capital needed by a small business to pay its necessary obligations as they mature until operations return to normal after the essential employee is released from active military duty. The purpose of these loans is not to cover lost income or lost profits. MREIDL funds cannot be used to take the place of regular commercial debt, to refinance long-term debt or to expand the business.
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Pre-Disaster Mitigation Loan Program
The purpose of the Pre-Disaster Mitigation Loan Program is to make low-interest; fixed-rate loans to eligible small businesses for the purpose of implementing mitigation measures to protect business property from damage that may be caused by future disasters. The program is a pilot program, which supports the Federal Emergency Management Agency (FEMA) Pre-Disaster Mitigation Program. SBA’s Pre-Disaster Mitigation Program is available to businesses whose proposed mitigation measure conforms to the priorities and goals of the mitigation plan for the community, as defined by FEMA, in which the business is located. Because the program has been approved only for limited funding, approved loan requests will be funded on a first-come, first-served basis up to the limit of the program funds
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Export Working Capital Program
The Export Working Capital Program (EWCP) was designed to provide short-term working capital to exporters.
The SBA's Export Working Capital Program (EWCP) supports export financing to small businesses when that financing is not otherwise available on reasonable terms. The program encourages lenders to offer export working capital loans by guaranteeing repayment of up to $1.5 million, or 90 percent of a loan amount, whichever is less. A loan can support a single transaction, or multiple sales on a revolving basis.
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SBA Export Express combines the SBA’s small business lending assistance with its technical assistance programs to help small businesses that have traditionally had difficulty in obtaining adequate export financing.
SBA Export Express helps small businesses that have exporting potential, but need funds to buy or produce goods, and/or to provide services, for export. Loan proceeds may be used to finance export development activities such as:
• Participation in a foreign trade show; • Translation of product brochures or catalogues for use in overseas markets; • General lines of credit for export purposes; • Service contracts from buyers located outside the United States; • Transaction-specific financing needs associated with completing actual export orders; and/or • Purchase of real estate and equipment to be used in production of goods or services, which will be expansion, • Provide term loans and other financing to enable small business concerns, including export trading companies and export management companies, to develop foreign markets; and • Acquire, construct, renovate, modernize, improve or expand productive facilities or equipment to be used in the United States in the production of goods or services involved in international trade.
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If your business is preparing to engage in, or is already engaged in international trade, or is adversely affected by competition from imports, the International Trade Loan Program is designed for you.
International Trade Loan Eligibility: The applicant must establish that the loan will significantly expand or develop an export market, is currently adversely affected by import competition, will upgrade equipment or facilities to improve competitive position, or must be able to provide a business plan that reasonably projects export sales sufficient to cover the loan.
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Defense Loan and Technical Assistance Program (DELTA)
SBA's Defense Economic Transition Assistance program is designed to help eligible small business contractors to transition from defense to civilian markets.
A small business is eligible if it has been detrimentally impacted by the closure (or substantial reduction) of a Department of Defense (DOD) installation, or the termination (or substantial reduction) of a Department of Defense Program on which the small business was a prime contractor, subcontractor, or supplier at any tier. In addition a business can be deemed eligible if it is located in community that has been detrimentally impacted by these same actions.
The DELTA program provides financial and technical assistance to defense-dependent small businesses, which have been adversely affected by defense reductions. The goal of the program is to assist these businesses to diversify into the commercial market while remaining part of the defense industrial base. Complete information on eligibility and other rules is available from each SBA district office.
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U.S. Community Adjustment and Investment Program (CAIP)
CAIP is a program established to assist U.S. companies that are doing business in areas of the country that have been negatively affected by NAFTA. Funds administered by Treasury (see below) allow for the payment of fees on eligible loans. These fees include the 7(a) program guarantee fee (and subsidy) and the 504 program guarantee, CDC and lender fees. Depending on the loan size, the fees can be sizeable.
The CAIP works with the SBA in both of their 7(a) Loan Guarantee Program and 504 Program to reduce borrower costs and increase the availability of these proven business assistance programs. CAIP can be used with both the 7(a) and 504 Loan Programs.
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Qualified Employee Trusts Loan Program
The objective of this program is to provide financial assistance to Employee Stock Ownership Plans. The employee trust must be part of a plan sponsored by the employer company and qualified under regulations set by either the Internal Revenue Service Code (as an Employee Stock Ownership Plan or ESOP) or the Department of Labor (the Employee Retirement Income Security Act or ERISA). Applicants covered by the ERISA regulations must also secure an exemption from the Department of Labor regulations prohibiting certain loan transactions. Pollution Control Loan Program
Pollution Control Loans are 7(a) loans with a special purpose of pollution control. The program is designed to provide financing to eligible small businesses for the planning, design, or installation of a pollution control facility. This facility must prevent, reduce, abate, or control any form of pollution, including recycling.
This program follows the 7(a) guidelines with the following exception. Use of proceeds must be for fixed-assets only
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CAPLines is the umbrella program under which the SBA helps small businesses meet their short-term and cyclical working-capital needs. A CAPLines loan, Except the Small Asset-Based Line, can be for any dollar amount that does not exceed SBA's limit. (See the 7(a) Loan program for more information on SBA's Basic Requirements.)
There are five short-term working-capital loan programs for small businesses under the CAPLines umbrella:
SEASONAL LINE: These are advances against anticipated inventory and accounts receivable help during peak seasons when businesses experience seasonal sales fluctuations. Can be revolving or non-revolving.
CONTRACT LINE: Finances the direct labor and material cost associated with performing assignable contract(s). Can be revolving or non-revolving.
BUILDERS LINE: If you are a small general contractor or builder constructing or renovating commercial or residential buildings, this can finance direct labor-and material costs. The building project serves as the collateral, and loans can be revolving or non-revolving.
STANDARD ASSET-BASED LINE: This is an asset-based revolving line of credit for businesses unable to meet credit standards associated with long-term credit. It provides financing for cyclical growth, recurring and/or short-term needs. Repayment comes from converting short-term assets into cash, which is remitted to the lender. Businesses continually draw from this line of credit, based on existing assets, and repay as their cash cycle dictates. This line generally is used by businesses that provide credit to other businesses. Because these loans require continual servicing and monitoring of collateral, additional fees may be charged by the lender.
SMALL ASSET-BASED LINE: This is an asset-based revolving line of credit of up to $200,000. It operates like a standard asset-based line except that some of the stricter servicing requirements are waived, providing the business can consistently show repayment ability from cash flow for the full amount.
MAXIMUM LOAN AMOUNTS Except the Small Asset-Based Line, CAPLine loans follow SBA's maximum loan amounts. The Small Asset-Based Line has a maximum loan amount of $200,000.
ELIGIBILITY Although most small businesses are eligible for SBA loans, some types of businesses are ineligible and a case-by-case determination must be made by the Agency.
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Disclaimer: The information provided here is only a guideline of potential programs. The information, SBA parameters, or lenders willingness to lend may change at any time and any Consultant or Client should speak directly to a lender considering their circumstance. There is no intent, implied or otherwise, that a loan can be obtained, or that the above information is up to date, or correct.
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