SBA 7(a) Business Loan Guaranty Program

The following general information is provided so that you will have a better understanding of the SBA 7(a) loan program. The information is general and each loan application is reviewed individually by Small Business Assistance Corporation.

ELIGIBILITY

1. The U. S. Small Business Administration generally does not make loans. The SBA guarantees loans submitted and made by financial institutions, generally banks.

a. The SBA guarantees loans up to $750,000 with a maximum guaranteed loan amount of $562,500. There is no theoretical minimum, however, most lenders are reluctant to process commercial loans less than $50,000. For loan requests of $150,000 or less, the guaranty is 85%; for loans over $150,000, the SBA guarantees 75% up to $1,000,000.

b. The prospective borrower will be required to provide a capital contribution. This contribution will normally be 30% to 50% of the total capitalization of a business start-up or 30% of project request.

c. An existing business will be required to provide financial statements showing the business:

• is a profit making concern
• does not have delinquent taxes
• will have a debt to worth ratio of approximately 4:1 or lower, after the proposed loan is made

2. Business proposals that are INELIGIBLE for the SBA guaranteed loan program are:

• Partial purchase of a business
• Lending institutions
• Real Estate held for speculation, investment or rental
• Religious organizations and their affiliates

FEES

The SBA charges the lender an incremental guaranty fee up to 3.50% on the guaranteed portion of the loan and .5% monthly fee on the outstanding balance of the guaranteed portion. SBA policy allows the lender to pass these fees on to the borrower. SBAC charges a $1,000 packaging fee.

RATE

The SBA's guaranteed loan program interest rates are based on the prime rate, as advertised in the Wall Street Journal, according to the following schedule:

1. Loans of less than 7 years; Prime rate plus 2.25%. (Maximum)
2. Loans of 7 years or more; Prime rate plus 2.75%. (Maximum)

The rate on the loan will be determined by the bank making the loan, and will be within the parameters established by the SBA.

TERM

The SBA guaranteed loan maturity (length of loan) is based upon the following schedule:

1. Working Capital seven (7) years
2. Equipment Ten (10) years
3. Real Estate Twenty-Five (25) years

BUSINESS PLAN

A BUSINESS PLAN that includes the items below will be most helpful in presenting a proposal to a lender for consideration.

1. Projected profit and loss statement
2. Cash Flow projections
3. Market analysis
4. Marketing strategy
5. Description of the business
6. Product or services advantage
7. Management ability-resumes of the key staff should be included
8. 3 years financial information (personal & business)
9. Cash requirements