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The 7(a) Loan Program
To insure small business access to credit, the SBA has various programs specifically tailored for individual business needs. The SBA does not make direct loans to businesses, it provides banks and other financial institutions up to 80% guarantee against loss in case of default. If adequate management, experience, earnings capacity, and capital base are demonstrated by the applicant, the SBA will favorably consider a loan application.
We provide consulting, packaging and preparation services to businesses considering any of the SBA loan products, One of the more widely used products is the 7(a) guarantee loan.
Minimums
There is no minimum amount
Maximums
The SBA may provide up to 75% or a $750,000 guarantee, whichever is lower. SBA's exposure cannot exceed $750,000, except in some special situations when SBA's exposure can be up to $1,000,000. Please contact us to determine if this situation is applicable to you.
Guarantee Amounts
The SBA will guarantee amounts up to 80% on loans of $100,000 or less. They guarantee up to 75% on loans over $100,000
Use of Proceeds
Loan proceeds may be used for such items as:
| Working Capital | Furniture & fixtures | Inventory |
| Real Estate | Machinery | Equipment |
| Leasehold Improvements | Buyouts |
Down payment
The equity requirements (or down payment) for an existing business is at least 10%. For a new business or purchase of an existing business, the equity requirements range from 25% to 50%. Forms of down payment can include cash, assets owned to be used by the business, or debt that is subordinate to the SBA loan in both collateral and repayment.
Maturity of Loan
| Working Capital | Up to 7 years |
| Machinery & Equipment | Up to the depreciable life of the assets |
| Real Estate | Up to 25 years |
The SBA will not allow a lender to "call" or "balloon" a 7(a) note.
Eligibility
Under the 7(a) program, each type of
business has a different size standard that cannot be exceeded.
Generally, the criteria is:
Manufacturer
Employs less than 500 people
Wholesaler
Employs less than 100 people
Construction
Sales are less than $7 million
Retail &
Service
Sales are less than $5 million
The SBA also has a limited number of industries and situations that are not eligible for any type of SBA financing (not-for-profit companies, financial institutions or speculative real estate projects.) For specific eligibility factors, please contact us.
Maximum Rate of Interest
The interest rate on the loan is negotiable between the lender and the business. However the SBA sets a maximum amount of interest a lender may charge a business using the 7(a) loan.
If the term is less
than 7 years, the rate is Prime plus 2.25%
If the term is greater than 7 years, the rate is Prime plus
2.75%
The interest rate may be either variable or fixed. This is negotiable between the business and the lender. For loans under $50,000, maximum interest rates can be higher. Contact us for specific maximum rates.
Collateral
The SBA normally requires a general security agreement with a lien on all business assets. Personal assets of the primary owner(s) will be considered for collateral if the business assets are not sufficient to adequately secure the loan.
Personal Guarantees
Guarantees are always required on all principals owning 20% or more of the company's stock. Guarantees may be required for ownership under 20%, depending upon the involvement in the business and other credit factors.
Personal Liquidity Factors
If the individual owner(s) of a company have liquid assets in excess of certain thresholds, these assets must be used to reduce the total amount of financing before consideration of an SBA loan. Contact us for specific amounts of liquid assets allowable.
Fees
The SBA charges the lender a guarantee fee between 2% and 3.5% of the guarantee portion, depending on the amount of the loan. This fee is generally passed by the lender directly to the borrower. The SBA also charges the lender 1/2% annually on the outstanding principal balance of the loan. This fee cannot be charged to the borrower. However, this may affect the amount of the interest rate a lender charges on the loan.
We generally collect a fee for our services performed in preparing the loan package. that fee is based on the amount of work involved.