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SBA Financing
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 lending institution for a portion of its loss. By providing this guaranty, the SBA is able to help 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. The SBA can then guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000. In most cases, the maximum guaranty is $1 million.
Exceptions are the International Trade, DELTA and 504 loan programs, which have higher loan limits.
Specialized Programs Under 7(a)
There are a number of special loan guaranty programs under the 7(a) program that address specific needs of start-up or established businesses. They are governed, for the most part, by the same rules, regulations, fees, interest rates, etc. as the regular 7(a) loan guaranty. Your lender can advise you of any variations.
SBA 504 Loan Program
The 504 is the SBA's economic development instrument that supports American small business growth and helps communities through business expansion and job creation. The SBA 504 loan program provides long-term, fixed-rate, subordinate mortgage financing for acquisition and/or renovation of capital assets including land, buildings and equipment. Virtually all types of for-profit small businesses are eligible for this program.
The 504 loan is distinguished from other SBA loans in these ways:
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Lower down payment; allows a business to conserve valuable operating capital by injecting just 10 percent of total project cost.
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Fixed interest rate; borrower knows cost of occupancy for the next 20 years.
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Rate is usually below market rate.
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All project costs can be financed, including acquisition (land and building, land and construction of building, renovations, machinery and equipment) and soft costs such as title insurance, legal, appraisal, environmental and bridge loan fees. Closing costs may be financed.
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Collateral is typically assets-financed; allows other assets to be free of liens and available to secure other needed financing.
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Long-term; real estate loans are 20-year term, heavy equipment 10- or 20-year term and are self-amortizing
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504 program encourages banks and other lenders to make loans in first position on reasonable terms, helps them retain growing customers and provides Community Redevelopment Act credit.
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504 program benefits the borrower's community through job creation and retention.
Businesses that receive 504 loans are:
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Small - net worth under $6 million, net profit after taxes under $2 million, or meet other SBA size standards.
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Organized as for-profit.
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Any type of business - retail, service, wholesale or manufacturing.
The SBA's 504 Certified Development Companies (CDCs) serve your community by financing business expansion needs. Their professional staff works directly with you to tailor a financing package that meets program guidelines and the credit capacity of your business.
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