This is a continuation of the last post, which primarily focused on the SBA 7(a) program. Here I’ll discuss other SBA lending programs.
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.
CDC/504 Loan Program
The CDC/504 Loan Program provides long-term financing to encourage economic development with a needing community. It’s goal is to allow small businesses with long-term, fixed-rate financing to acquire major fixed assets to allow modernization or business expansion.
A CDC or Certified Development Company is a private, nonprofit corporation which enhances local economic development. CDCs usually focus on a specific in-need community. A CDC will work not just with the SBA but also other community lenders to help the community.
These projects can be structured as follows:
– A private sector lender will secure a loan with a senior lien covering up to 50% of the project cost
– A CDC secured loan that is backed by a 100% SBA guaranteed debenture. This could include a junior lien that covers up to 40% of the project cost.
– The borrower will contribute at least 10% of the project cost in the form of equity.
The 504 loans must be used for fixed-asset projects. This includes the purchase of land and buildings, improvements such as street grading, utilities, parking lots, etc., construction of new buildings or the renovation of buildings. The purchase of machinery and equipment is also allowed.
The CDC/504 loan are not allowed for working capital or inventory and refinancing, repaying or restructuring debt.
Microloan Programs
The SBA Microloan Program gives smaller, short-term loans to small businesses and certain non-profit child-care centers.
The SBA uses specially designated intermediary lenders to administer this program. These lenders are non-profit community based organizations. The organizations need to be experienced in lending and will assist with management and provide other help.
The average microloan is around $13,000, given the information we’ve seen.
Microloans are allowed to be used for working capital, inventory and supplies, furniture/fixtures and machinery and equipment.
CAPLines is an umbrella program that helps small businesses meet their short-term and cyclical working-capital needs. It consists of four lines: SeasonalCAPLine, ContractCAPLine, Builders CAPLine and Working CAPLine.
Other than the Builders CAPLine, the maximum maturity on these loans is ten years. Builders CAPLine loans have a maturity of not more than five years.
Who are SBA Preferred Lenders?
The SBA gives certain selected lenders more authority to process and service SBA guaranteed loans. The SBA field office can nominate the lender or the lender can ask a field office to consider it for preferred status.
The SBA chooses lenders for its Preferred Lenders Program that can process, close service and liquidate loans, can develop and analyze complete loan packages, and has a satisfactory SBA performance.
Generally speaking, it is easier to work with a lender in the Preferred Lenders Program.
How to get started on SBA Loan Programs?
The SBA recommends four steps in starting the loan process.
1) Estimate the cost of funds that you need to grow the business or for the project you need to have funded.
2) Get in touch with a local lender to review the available programs for your project. They should be able to point you to the program most appropriate for your needs.
3) Prepare a draft loan proposal.
4) Review all of this with someone that is very knowledgeable about SBA loan programs and their practices. The SBA may be able to provide this role to you.
Sometimes an outside consultant can help you get through this process, from beginning to end.
The reader should always check the most current and accurate information on the SBA loan programs as they can change.
