The SBA loan program is a government-sponsored program created to encourage, assist, and protect small businesses. With few exceptions, the SBA does not loan directly to businesses. Rather, it guarantees loans provided by banks and other financial organizations, and establishes guidelines for the loans. SBA guarantees help minimize the risk assumed by the lenders. In most cases, SBA loans are not granted to businesses that may otherwise be qualified for financing at reasonable terms.
SBA loan programs are funded by the government, and may change as new legislation is passed to address changing economic needs. Currently, there are several types of SBA loans available, including the 7(a) Loan Program, the CDC/504 Loan Program, the Microloan Program, and the Disaster Assistance Program. The 7(a) Loan Program is the most commonly used of all the SBA programs. Please visit www.sba.gov with any questions about available programs.
7(a) Loans
These loans are available from SBA-approved financial institutions and carry an SBA repayment guarantee to protect the lender against default. Except where noted below, the program provides a guarantee of 85 percent on loans up to $150,000 and 75 percent on loans above that amount. Loans are limited to a maximum of $5 million, unless otherwise indicated.
Proceeds from 7(a) loans can be used to start a new business or to help with the acquisition, operation, or expansion of an existing business. Eligible expenses include purchase of land, buildings, or an existing business, as well as equipment, furniture, supplies, and fixtures. It also includes both short- and long-term working capital.
Express & Pilot Programs
SBA Express Loan Programs are designed for certain types of borrowers and have a streamlined, expedited loan application process. The options noted below can be structured as term loans or revolving lines of credit.
SBA Express:
Loans for small businesses that have a 36-hour turnaround time for responses to loan applications. The maximum loan amount is $350,000 and the SBA provides a 50% guarantee for these loans.
Patriot Express:
Featuring the same quick turn-around as the SBA Express, this pilot program is for veterans or members of the military community. Proceeds can be used for most business reasons stated above, as well as for preparing the business for your deployment. The maximum loan amount is $500,000.
Export Loan Programs
Export Loan Programs are designed to encourage and assist small businesses in exporting their products and/or services overseas.
Export Express:
The simplest of the export loan programs, these are loans with a streamlined application process. They help small businesses develop or expand their export markets. The maximum loan amount is $500,000. The guarantee amounts are 90 percent for loans of $350,000 or less and 75 percent for loans of more than $350,000. These loans can be used for the business reasons stated above as well as standby letters of credit.
Export Working Capital Program (EWCP):
Loans of up to $5 million geared towards small businesses that are able to generate export sales, but need additional working capital to support these sales. They can also support standby letters of credit. The SBA offers a 90 percent guarantee on these loans.
International Trade Loan Program:
Programs for business owners who plan to start or continue exporting or that have been adversely affected by competition from imports. The SBA offers a 90 percent guarantee on loans of up to $5 million (except for loans used for working capital, which have an 80% guarantee).
Rural Business Loans
Small/Rural Lender Advantage Program (S/RLA):
Caters to the processing needs of small communities and rural-based lenders through a simplified, streamlined loan application process. The program imposes a loan limit of $350,000.
Business and Industry Guaranteed Loan Program:
Administered by the U.S. Department of Agriculture and promoted by the SBA, this loan programs offers an 80 percent guarantee on loans of up to $5 million; a 70 percent guarantee on loans of more than $5 million to $10 million; and a 60 percent guarantee on loans of more than $10 million to $25 million.
Special Purpose Loans
Community Adjustment and Investment Program (CAIP):
A loan program established to help U.S. businesses located in areas of the country that are negatively impacted by NAFTA.
CAPLines:
A loan program with lines of credit that are geared towards helping small businesses meet their short-term and cyclical needs (e.g., seasonal lines of credit; builders’ lines of credit).
Employee Trusts:
A program that provides financial assistance to Employee Stock Ownership Plans.
Pollution Control Loans:
Loans to eligible small businesses for the planning, design or installation of a pollution control facility. Pollution Control Loans currently are not available due to lack of appropriations.
Advantage Loan Initiatives
Launched in February 2011, the Advantage Loan Initiatives were established to support small businesses and entrepreneurs in under-served communities.
Small Loan Advantage:
A program that is designed to encourage larger, established SBA lenders to make lower-level loans. The maximum loan amount is $350,000, and applications can be approved in a matter of minutes via electronic submission.
Community Advantage:
In an effort to increase the number of institutions that make 7(a) loans, this three-year pilot program targets community-based, mission-focused financial institutions that were previously not able to make SBA loans. The maximum loan amount is $250,000.
What Other Types of SBA Loans Are Available?
The following is a brief description of various other SBA loan programs (non 7(a) loans) that may be available to certain businesses. Some of these programs are direct loans from the SBA, rather than SBA-guaranteed loans.
CDC/504 Loan Program
The 504 Loan program provides small businesses with long-term, fixed-rate financing for fixed asset projects, such as: purchasing land and improvements; construction of new or modernization of existing facilities; and purchasing long-term machinery/equipment. These loans are provided through Certified Development Companies–community-based nonprofit organizations that are regulated by the SBA and work with participating lenders to provide the funding. With these loans, the lending organization typically provides 50% of the projected costs, the SBA provides 40%, and the borrower contributes 10%. In some cases the borrower may be asked to contribute up to 20%.
In most cases, the maximum loan amount is $5 million, and in general, the business must create or retain one job for every $65,000 guaranteed by the SBA. (For small manufacturers, the job requirement applies to every $100,000.) The job requirement may be waived if the business meets a community development or public policy goal.
Microloan Program
The Microloan program provides small, short-term loans (the maximum loan amount is $50,000) to small businesses and certain non-profit child-care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Loans are provided by non-profit community-based organizations that have experience in lending, management, and technical assistance. Loans cannot be used to repay existing debt. The SBA requires lenders to provide business training and technical assistance to borrowers. This means that borrowers may be required to undergo such training as a condition of the loan.
Disaster Assistance
Four types of SBA loans are available to business and home owners in officially declared disaster areas:
Business Physical Disaster Loans:
Loans of up to $2 million to help businesses and nonprofit organizations within the disaster area repair and replace real property, machinery, equipment, fixtures, and leasehold improvements.
Economic Injury Loans:
Loans of up to $2 million that help small businesses, small agricultural cooperatives, and certain nonprofit organizations that suffer substantial economic distress because of a disaster. Loan proceeds can be used to meet financial obligations and working capital needs that could have been met if a disaster had not occurred.
Home and Personal Property Loans:
Homeowners, renters, and personal property owners who are victims of a disaster may borrow up to $40,000 from the SBA to repair or replace clothing, furniture, cars, appliances, and other belongings damaged or destroyed in a disaster. In addition, loans of up to $200,000 may be granted to restore a primary residence to its pre-event state.
Military Reservists Economic Injury Disaster Loans:
The MREIDL Program provides loans of up to $2 million to small businesses that are unable to meet ordinary and necessary operating expenses due to an essential employee being called up to active duty in their role as a military reservist. The program’s filing period begins on the date the essential employee receives notice of activation and ends one year after the employee’s discharge or release from active duty.
Loan Terms
Terms vary for the different types of loans. Factors that help determine loan maturities, fees, interest rates, and qualifications include loan type, size of business, and purpose of the loan proceeds. For more information, visit the Small Business administration web site at http://www.sba.gov/.
How Do You Get an SBA Loan?
In most cases, you are not eligible for SBA assistance unless you have been turned down for at least one bank loan. So, before you even apply for an SBA-guaranteed loan, you must try to obtain a loan directly from a lending institution.
SBA-guaranteed loans are originated by SBA participating lenders. To locate participating lenders in your area, visit the Small Business Administration web site (http://www.sba.gov/) or contact your local or regional SBA office.
The paperwork required to apply for an SBA loan has dramatically decreased. In many cases, a simple two-page application is all you’ll need to fill out. However, your application and supporting documentation must prove the following to the SBA and to the lender.
- That the business will be able to stay current on its debts, even with the addition of the new loan
- That there is already a reasonable amount of equity invested in the business or collateral for the loan
- That your existing track record is strong or that your financial projections are realistic
- That your management team has the expertise to competently manage the operations of your business
Generally, you should submit a business plan with your loan application. This plan should be supported by the following documentation:
- Projected profit and loss statements
- Cash flow projections
- Schedule of current debt
- Personal and business tax returns for the last three years
- Market analysis and marketing strategy
- Description of the business and the advantages of your product or service
- Information on your management team, including resumes and personal financial statements
- Cash requirements and a description of how you plan to use the loan funds
- Collateral, if required
If you have questions, contact the Business Experts at Henssler Financial: experts@henssler.com or 770-429-9166.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
