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SBA LOANS- WHAT ARE THEY? HOW DO I APPLY?
The U.S. Small Business Administration, more commonly known as the SBA, is a federal agency established by Congress in 1953 for the purpose of helping new businesses get started and established businesses to grow. The mission of the agency is to aid, counsel, assist and protect the interest of small business and to provide access to capital for small businesses.
SMALL BUSINESS ADMINISTRATION PROGRAMS
These are just a few of the resources available to your company through the SBA.
THE VALUE OF SMALL BUSINESSES
According to the U.S. Small Business Administration, Office of Advocacy, American's 25 million small businesses employ about 58 percent of the private work force, generate more than 51 percent of the nation's gross domestic product, create 75 percent of new jobs and contribute 51 percent of private sector output. American small business is the backbone of our economy and the driving force behind economic growth and prosperity.
HOW MANY LOANS ARE MADE WITH THE ASSISTANCE OF SBA?
During fiscal year 2004 the SBA:
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Backed a record of nearly $12.5 billion in financing to America's small businesses.
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Approved more than 74,825 loans totaling almost 12.5 billion
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Provided more than 8,168 loans totaling approximately $3.9 billion under the 504. or Certificate Development Company, program.
AMOUNTS AND TERMS OF LOANS
By law, the agency may not guarantee a loan if a business can obtain funds directly from a bank or other private sources. However, if financing is not available on reasonable terms, SBA may guarantee a bank loan.
The percent of a loan that the SBA will guarantee depends on several factors: amount, term and use of proceeds. The guarantee ranges from 50% to 85%.
Maturities can range from seven years for working capital to twenty five years for real estate financing, all without balloon maturities.
COLLATERAL
May consist of one or more of the following:
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A mortgage on land and/or buildings
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Security interest in accounts receivable, inventory and/or equipment
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Mortgage on chattels
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Guarantees or personal endorsements
WHAT ABOUT INTEREST RATES?
Interest rates are floating with a maximum rate of 2.75% above the Wall Street Journal prime rate (up to 6.50% above the Wall Street Journal prime rate for loan amounts under $50,000). No commitment fees can be charged on an SBA loan, however, there is a fee on the guaranteed portion of the loan that is paid to the SBA. An additional fee may be charged if there are any unusual servicing requirements for the loan, such as construction.
HOW DO I APPLY FOR AN SBA LOAN?
To apply, you will need to provide the bank with a completed financial package. Details are included on the SBA Loan Checklist. Once the package is received, the bank will process your request.
After the bank has approved the request, a complete SBA application is prepared. It is then submitted to the SBA district office for consideration. The application for the SBA may contain additional information such as a personal history of all the owners and officers of the company, detailed listings of collateral and written third party quotes for assets being purchased or real estate improvements to be made with SBA loan proceeds. Once the SBA has approved the loan request, the bank will close the loan following the SBA guidelines.
As with any bank loan, in order to obtain an SBA guaranteed loan the applicant must:
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Be of good character.
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Demonstrate management expertise and the commitment to run a successful business.
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Have sufficient capital, including the SBA guaranteed loan, to operate the business on a sound financial basis.
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Be able to show that past and future earnings will be able to meet the debt service requirements of the loan in a timely manner.
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Pledge sufficient assets as collateral to adequately secure the loan.
Informational Links
United States Small Business Administration
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