In challenging times, small businesses can look for liquidity and financing in many places. The various SBA loan programs are one of the better places to search.
Because SBA loan guaranty requirements and practices can be change by the government at any time, it is important for applicants to obtain current and accurate information.
This article is merely intended to help a business owner ( potential borrower) start thinking about these programs. You must do your own investigation and research.
The information here is not to considered legal or financial advice. Just a prompt to start thinking about the topic.
Businesses and small businesses in particular have been through tough, even grim times. We should more of the same to come, that’s just the nature of doing business occasionally.
One place that can provide help to small businesses during such times is the Small Business Administration (SBA) and its Guaranteed Loan Programs.
The SBA doesn’t make direct loans to businesses. The SBA establishes the guidelines for loans which are then made by its “partners”. This includes traditional lenders, microlending and community development organizations.
The caveat is that SBA guaranteed loans cannot be made if the borrower has access to other financing on reasonable terms. So the SBA could be considered the lender of last resort.
Again, because SBA loan guaranty practices can be changed by the government (and they are) it’s essential for potential applicants to research and learn the most current information about these loans.
Here is an overview of one of the most popular programs. The next post will discuss other programs.
The 7(a) Loan Program
This is the most commonly used of all the SBA loan programs. It is designed for borrowers who want to start, expand or acquire a small business.
The way it works is as follows. The actual loan is obtained from a participating lender institution. It provides long-term, fixed-rate financing for major fixed assets such as land and buildings, equipment, supplies/materials and so on.
The Standard 7(a) loans can be for both long and short term capital requirements. Terms can range up to ten years for working capital and 25 years for fixed assets. There are maximum SBA guarantee percents. For example, 85% for loans up to $150,000 and 75% for loans greater than $150,000.
Generally lenders are not required to take collateral for loans up to $25,000. For loans greater than $350,000 the SBA requires the maximum extent possible up to the loan amount.
The 7(a) loan cannot be used for the financing of non-profits and real estate investments. It can’t be used for monopolies either, but let’s assume the small business owner isn’t running a monopoly.
The regular time frame to get a loan approved can be 5-10 business days. In times of high demand and economic distress the time frame may be longer.
There are a bunch of different types of 7(a) loans other than the “Standard”. See the SBA for more detail on each. These include:
The 7(a) Small Loan. The maximum loan amount is capped at $350,000.
The SBA Express. The maximum loan amount is $350,000. The SBA will turn around the approval to 36 hours.
The Export Express. The maximum loan amount is $500,000. The Export Express provides exporters and lenders a faster method to obtain SBA-backed financing. Turn-around time is 24 hours.
Export Working Capital. Maximum loan amount is $5 million. This is for businesses that can generate export sales and need additional working capital. Lenders submit applications to the U.S. Export Assistance Center in the borrower’s region.
International Trade. The maximum loan amount is $5 million. These loan provide long term financing that are growing because of growing export sales or have been negatively affected by imports.
The reader should always check the most current and accurate information on the SBA loan programs as they can change.
