SBA 7(a) Loan Guaranty Program
The following information is provided to give a better understanding of the SBA 7(a) loan program. The information is general and each loan application is reviewed individually by the Small Business Assistance Corporation.
- The U. S. Small Business Administration does not generally make direct loans. Rather they guarantee loans submitted and made by financial institutions, generally banks.
- The SBA guarantees loans up to $5,000,000 with a maximum guaranteed loan amount of $3,750,000. There is no theoretical minimum, however most lenders are reluctant to process commercial loans less than $50,000. (The SBAC provides other loan programs for lower loan requests).
- The prospective borrower will generally be required to provide a capital contribution. The minimum contribution is normally 10% of project request.
- An existing business will be required to provide financial statements showing the business:
- is viable and profitable
- does not have delinquent taxes
- is a for-profit concern
- has proper management in place
- Eligible Uses of Proceeds include:
- Refinancing of current debt
- Working capital
- Renovation, construction, or purchase of land and building
- Business acquisition
- Furniture, fixtures, and equipment
- Soft/Closing costs
- Franchise fees
- Examples of business proposals/projects that are ineligible for the SBA (7a) guaranteed loan program are:
- Partial purchase of a business
- Lending institutions
- Real estate held for speculation, investment, or rental
- Religious organizations and their affiliates
- Non-profit entities
The SBA charges the lender an incremental guaranty fee of up to 3.75% on the guaranteed portion of the loan. A .55% monthly fee on the outstanding balance of the guaranteed portion is also paid to SBA by the lender. SBA policy allows the lender to pass these fees on to the borrower. The SBAC charges a $2,500 packaging fee.
The rate on the loan will be determined by the bank making the loan, and will be within the parameters established by the SBA. The SBA’s guaranteed loan program interest rates are generally based on the prime rate, as advertised in the Wall Street Journal, according to the following schedule for loans over $50,000:
- Loans with a maturity of less than 7 years: Prime rate plus 2.25%. (Maximum)
- Loans with a maturity of 7 years or more: Prime rate plus 2.75%. (Maximum)
The SBA guaranteed loan maturity (maximum length of loan) is based upon the following schedule:
- Working capital: 10 years
- Equipment: 10 years or useful life
- Real estate: 25 years maximum
BUSINESS PLAN FOR START UP BUSINESSES
A business plan that includes the items below will be most helpful in presenting a proposal to a lender for consideration:
- Projected profit and loss statement
- Cash flow projections
- Market analysis
- Marketing strategy
- Description of the business
- Product or services advantage
- Management ability (resumes of key staff members should be included)
- 3 years of financial information (personal & business)
- Cash requirements
All information is subject to change without notice.