FACTS ABOUT SBA LENDING

* Program Information
* Rate and Term
* Eligibility Issues
* Credit Criteria

Overview

The Small Business Association's lending program is designed to help small businesses obtain financing, that generally would not be available to them through conventional banks and other lenders. These SBA loans typically have long term maturities, as long term financing is generally harder to get in the private sector. However, the SBA does not provide financing for companies that can't demonstrate prudent management, owner sufficient capitalization and the ability to repay the debt.

Loan Amounts

The typical SBA loan is in the $250,000 to $2,000,000 range and can be structured in numerous ways. Note that the SBA guarantees loans made by banks and other lenders. Typically, the SBA will guarantee 75% of the loan about. The SBA does not make direct loans to businesses.

Loan Purposes

Commercial Real Estate
Inventory and Materials
Furniture, Fixtures, Machinery and Equipment
Leasehold improvements
Business equipment
To buy out a partner or shareholder
To Repay Trade Payables
To Provide Working Capital
To Provide Debt Refinancing that substantially improves the business' cash flow

Non Permitted Uses

For the repayment of shareholder or owner loans to company
For Cash out refinancing
For the Repayment of income tax or sales tax liabilities
For Debt refinancing that does not substantially improve the cash flow of the business
For the Acquisition or Refinance of Investment Real Estate

Loan Maturity
SBA loans are typically used to for long-term business financing. The term is typically based upon the ability of the business to replay the loan, and the remaining useful life of the asset being financed. The following are general guidelines.

Real Estate 25 years
Working Capital 7-10 years
Equipment up to 15 years, depending on remaining useful life

When the loans are used for varied purposes, the SBA will use a weighted average for the maximum maturity.

Interest Rate and other Loan Provisions
The SBA does not set the interest rate on the loans. The rate of interest is determined by the lending institution and based on market factors. It is typically an adjustable rate mortgage tied to the Wall Street Journal Prime. The maximum permitted rate allowed by the SBA is Prime + 2.75%.

SBA loans include a prepayment penalty when the loans have a maturity of 15 years or more when the buyer prepays more than 25% of the principal balance within the first three years. The prepayment penalty is as follows:

Year 1: 5%
Year 2: 3%
Year 3: 1%
Year 4 and after: none

SBA Loans require a personal guarantee from all owners, officers, and directors that own 20% or more of the business.