Small business is big business: it accounts for more than half of the private work force in the country and more than half of all sales. Small business also has the highest potential for growth of any sector of our economy, creating roughly 60 percent of all new jobs. 

To fund that growth, small businesses need access to capital in the form of both long- and short-term loans or investment capital. Yet small firms often don't have the collateral or credit history to qualify for financing through normal lending channels. 

That's where the SBA comes in.  They have loan programs and services to meet most of your business needs. To find out how their programs and services can work for you, just give them a call. For the district office nearest you, look in the telephone book under "U.S. Government," or call (800) 8-ASK-SBA.

SBA Financial Assistance Programs 

7(a) Loan Guaranty Program
The 7(a) Loan Guaranty Program is the SBA's primary loan program. The SBA reduces risk to lenders by guaranteeing major portions of loans made to small businesses. This enables the lenders to provide financing to small businesses when funding is otherwise unavailable on reasonable terms. The eligibility requirements and credit criteria of the program are very broad in order to accommodate a wide range of financing needs. 

When a small business applies to a lending institution for a loan, the lender reviews the application and decides if it merits a loan on its own or if it requires additional support in the form of an SBA guaranty. SBA backing on the loan is then requested by the lender. In guaranteeing the loan, the SBA assures the lender that, in the event the borrower does not repay the loan, the government will reimburse the lender for its loss. By providing this guaranty, the SBA helps tens of thousands of small businesses every year get financing they would not otherwise obtain.

To qualify for an SBA guaranty, a small business must meet the 7(a) criteria, and the lender must certify that it could not provide funding on reasonable terms except with an SBA guaranty. Effective December 22, 2000, a maximum loan amount of $2 million has been established for 7(a) loans. However, the maximum dollar amount the SBA can guaranty is generally $1 million. Small loans carry a maximum guaranty of 85 percent. Loans are considered small if the gross loan amount is $150,000 or less. For loans greater than $150,000, the maximum guaranty is 75 percent. Exceptions are the International Trade, DELTA and 504 loan programs, which have higher loan limits. 

How It Works You submit a loan application to a lender for initial review. If the lender approves the loan subject to an SBA guaranty, a copy of the application and a credit analysis are forwarded by the lender to the nearest SBA office. After SBA approval, the lending institution closes the loan and disburses the funds; you make monthly loan payments directly to the lender. As with any loan, you are responsible for repaying the full amount of the loan. 

There are no balloon payments, prepayment penalties, application fees or points permitted with 7(a) loans. Repayment plans may be tailored to each individual business. 

Use of Proceeds 

You can use a 7(a) loan to - 

• expand or renovate facilities; 

• purchase machinery, equipment, fixtures and leasehold improvements; 

• finance receivables and augment working capital; 

• refinance existing debt (with compelling reason); 

• finance seasonal lines of credit; 

• construct commercial buildings; and/or 
  purchase land or buildings. 

Terms, Interest Rates and Fees 

The length of time for repayment depends on the use of the proceeds and the ability of your business to repay: 

usually five to 10 years for working capital, and 
up to 25 years for fixed assets such as the purchase or major renovation of real estate or purchase of equipment (not to exceed the useful life of the equipment). 
Both fixed and variable interest rates are available. Rates are pegged at no more than 2.25 percent over the lowest prime rate* for loans with maturities of less than seven years and up to 2.75 percent for seven years or longer. For loans under $50,000, rates may be slightly higher. 

The SBA charges the lender a nominal fee to provide a guaranty, and the lender may pass this charge on to you. The fee is based on the maturity of the loan and the dollar amount that the SBA guarantees. On any loan with a maturity of one year or less, the fee is just 0.25 percent of the guaranteed portion of the loan. On loans with maturities of more than one year where the portion that the SBA guarantees is $80,000 or less, the guaranty fee is 2 percent of the guaranteed portion. On loans with maturities of more than one year where the SBA's portion exceeds $80,000, the guaranty fee is figured on an incremental scale, beginning at 3 percent. 

* All references to the prime rate refer to the lowest prime rate as published in the Wall Street Journal on the day the application is received by the SBA. 

Collateral 

You must pledge sufficient assets, to the extent that they are reasonably available, to adequately secure the loan. Personal guaranties are required from all the principal owners of the business. Liens on personal assets of the principals also may be required. However, in most cases a loan will not be declined where insufficient collateral is the only unfavorable factor. 

Eligibility 

Your business generally must be operated for profit and fall within the size standards set by the SBA. The SBA determines if the business qualifies as a small business based on the average number of employees during the preceding 12 months or on sales averaged over the previous three years. Loans cannot be made to businesses engaged in speculation or investment. 

Maximum Size Standards 

Manufacturing - from 500 to 1,500 employees 
Wholesaling - 100 employees 
Services - from $2.5 million to $21.5 million in annual receipts 
Retailing - from $5 million to $21 million 
General construction - from $13.5 million to $17 million 
Special trade construction - average annual receipts not to exceed $7 million 
Agriculture - from $0.5 million to $9 million 
What You Need to Take to the Lender 

Documentation requirements may vary; contact your lender for the information you must supply. Common requirements include the following: 

• Purpose of the loan 

• History of the business 

• Financial statements for three years (existing businesses) 

• Schedule of term debts (existing businesses) 

• Aging of accounts receivable and payable (existing businesses) 

• Projected opening day balance sheet (new businesses) 

• Lease details 

• Amount of investment in the business by the owner(s) 

• Projections of income, expenses and cash flow 

• Signed personal financial statements 

• Personal resume (s) 

What the SBA Looks For 

• Good character 

• Management expertise and commitment necessary for success 

• Sufficient funds, including the SBA-guaranteed loan, to operate the business on a sound financial basis (for new businesses, this includes the resources to withstand start-up expenses and the initial operating phase) 

• Feasible business plan 

• Adequate equity or investment in the business 

• Sufficient collateral 

• Ability to repay the loan on time from the projected operating cash flow 

Specialized Programs Under 7(a) 
In addition to the standard loan guaranty, the SBA has targeted programs under 7(a) that are designed to meet specialized needs. Unless otherwise indicated, they are governed by the same rules, regulations, interest rates, fees, etc. as the regular 7(a) loan guaranty. 

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