Capital Access: SBA Financing Options for Your

Small BusinessPresented by

U.S. Small Business Administration’s

Colorado District Office

SBA Loan Guaranties-Understanding How It Works

SBA does not provide:• Grants• Low interest rate loans• Minority- or women-owned small

business loans• 100% financing • Direct business loans

7(a) Loan Guaranty Program

• Applicant applies for commercial loan at bank

• If commercial loan declined, applicant may ask SBA participating lender to consider an SBA 7(a) guaranteed loan.

• Lender submits SBA guaranty application to SBA.

• After SBA guaranty approved, lender disburses funds to applicant.

• SBA guaranties range from 50-90%.

SBA Eligibility Requirements

• Be independently owned and operated for profit

• Not dominant in its field of operation or industry

• May not exceed SBA size standards (based on average annual receipts for past 3 fiscal years or average number of employees over last 12 months)

Businesses must:Businesses must:

• Management: related industry experience,

education, ownership and management experience• Repayment ability: historical/projected cash flow &

debt service coverage• Collateral: Secondary source of repayment• Credit: personal/historical business credit

experience• Leverage: debt/tangible net worth, retained earnings

& capitalization• Equity injection: cash injection/seller carry-back

(Generally on full standby during term of SBA loan)

SBA Basic RequirementsSBA Basic Requirements

SBA Requirements (Con’t)

• Cash/Equity injection required: generally 20-30% in a normal economy

• SBA considers type of business & its industry risk

• Availability of funds from other sources

• Personal guaranties required of all owners of 20% or more of business

SBA Requirements (Con’t)

• Businesses Ineligible for SBA Guaranty:• Non-profits• Businesses engaged in lending activities• Speculative or investment type businesses• Businesses engaged in gambling• Illegal businesses• Businesses providing prurient sexual material• Businesses promoting religion

Use of Proceeds

• Expand & renovate facilities;• Purchase machinery & equipment, construct

leasehold improvements, purchase land and existing building for business;

• Finance receivables & augment working capital;

• Refinance existing debt (with compelling reason);

• Finance seasonal lines of credit; and/or• Construct commercial buildings.

Loan Terms

Flexible maturities:– Up to 10 years for working capital– Up to 10 years for equipment– Up to 25 years for fixed assets:

• Real estate• Construction• Capital Equipment (based on economic life of equipment)

Interest rates:• Negotiated between borrower & lender• Under 7 year term cannot exceed base rate plus 2.25%• Over 7 year term cannot exceed base rate plus 2.75%• Base rate options: NY prime, 30-day LIBOR + 3% or SBA peg rate (3.375%)

May be higher for SBAExpress program or smaller loans

SBA Loan Programs

• 7(a) Loan Program– Expedited Programs

• SBAExpress• Small Loan Advantage• Veterans Advantage

– CAPLines

• 504 fixed asset financing• Micro-loan program

7(a) Loan

• Can be used for basically any purpose.

• Loan up to $5M• SBA guaranty of 75% - 85%• Maturity length and interest rates as

discussed previously

SBAExpress

• Lender uses its own forms• Loan or revolving lines of credit up to

$350,000• Limited SBA guaranty of 50%• Interest rates: 4.5% over prime for

loans over $50,000 but 6.5% over prime for loans under $50,000

• 36-hour response from the SBA

Small Loan Advantage

• $350,000 Max Term Loan

• Uses expedited credit scoring method

• Maturity Length same as standard 7(a)

• Proceeds to be used for all of the same items as listed in 7(a)

• 85% guaranty for loans $150,000 or less, 75% on loans greater than $150,000

Veterans AdvantageVeterans Advantage

• Targets veterans and service-disabled veterans, reservists, National Guard, their spouses or widowed spouses

• Uses expedited SBA review & approval process

• Maximum loan amount of $350,000• 75-85% loan guaranty to bank depending

upon loan amount• NO FEES!!!

CAPLines Working Capital Program)

• For short-term & cyclical working capital needs

• Maximum loan of $5.0 million• Proceeds advanced against

inventory or receivables• Types of CAPLines:

Seasonal LineSeasonal LineContract LineContract LineBuilders LineBuilders LineWorking Capital

504 Fixed Assets Financing

• Long-term, fixed-rate financing (10 & 20 year terms)

• Up to $5.0 million in SBA-backed debenture under job creation goal; $5.5 million for manufacturers

• Used for Property, Building, and Large Fixed Assets

A Typical 504 Project —

• A third party lender (bank/credit union)

provides 50% of project financing

• 504 loan through a CDC provides up to 40%

of project financing backed 100% by SBA

debenture sold to institutional investors

• At least 10% of project financing provided by

applicant (additional 5% for single or limited

use building & additional 5% for startup

business)

Micro-Loans

• SBA provides direct loan through non-profit intermediary

• Micro-lender loans of up to $50,000 to small businesses

• Term of up to six years• Used for —

• Machinery, equipment & fixtures• Leasehold improvements• Inventory• Working capital

• Technical assistance available

Questions & AnswersQuestions & Answers