There are several SBA loan programs for entrepreneurs. Information on some of the most utilized programs follow, with the SBAExpress Loans a viable option for many small businesses:
SBAExpress Loans
* The maximum loan amount is $350,000, and the maximum SBA guaranty is 50%. This is sufficient for many start-up ventures.
* Lenders and borrowers can negotiate the interest rate with a local bank. Rates are tied to the prime rate (as published in the Wall Street Journal) and may be fixed or variable, but they may not exceed the SBA maximums. Lenders may charge up to 6.5 percent over the prime rate for loans of $50,000 or less and up to 4.5 percent over the prime rate for loans over $50,000. Lender uses mostly its own forms and procedures. The credit decision is made by the Lender, and the SBA turnaround time is 36 hours or less.
* The Lender is not required to take collateral for loans up to $25,000. The Lender may use its existing collateral policy for loans over $25,000 up to $150,000. For Loans greater than $150,000, the Lender must follow SBA's general collateral policy.
7(a) loans
* 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.
* 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.
* 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.
* 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.
Patriot Express Loans
* The maximum loan amount is $500,000, and the maximum SBA guaranty is 85%. The Interest Rate may be fixed or variable and lenders and borrowers can negotiate interest rate, but lenders may not charge more than 2.25 percent over Prime for loans of less than 7 years and 2.75 percent over Prime for loans greater than 7 years; lenders may charge 1 percent more for loans of $50,000 or less and 2 percent more for loans of $25,000 or less.
* Must meet standard SBA eligibility and must be 51 percent or more owned/controlled by: i) Veteran (other than dishonorably discharged), ii) Active Duty Military potential retiree within 24 months of separation and discharging Active Duty member within 12 months of discharge (TAP eligible), iii) Reservist and National Guard or iv) Current spouse of above or spouse of service member or veteran who died of a service-connected disability.
* Revolving loans are allowed up to 7 years with maturity extensions permitted at the outset. Lender uses mostly its own forms and procedures. The credit decision is made by the Lender, and the SBA turnaround time is 36 hours or less. Lenders are not required to take collateral for loans up to $25,000; may use their existing collateral policy for loans over $25,000 up to $350,000, but must take available collateral for loans greater than $350,000.
We always offer a free consultation to business owners and entrepreneurs on this option and others to expand and start up worthy ventures. Please contact us for more information.
