SBA financing sources


The Small Business Administration (SBA) was founded on July 30, 1953. The main purpose of this organization is to aid, counsel, assist, and protect, insofar as is possible, the interests of small business concerns. Since its inception, the SBA has delivered approximately 20 million loans, helping nearly 20 million small businesses obtain financing that they could not have received anywhere else.

Businesses who do not qualify for conventional financing, or need a higher loan-to-value than traditional lenders will offer, turn to the SBA for financing. The SBA guarantees these loans which are originated by thousands of various banks, lenders, and other lending institutions.

The SBA offers loans that are secured by real estate and loans that are not secured by real estate. Two of the most popular loans they offer to small businesses are:

1. SBA 7(a) and SBA 7(a) Express Loans

2. SBA 504 (CDC) Loans

Let's take a look at some of the benefits of each of these types of loans:

SBA 7(a) & Express Loans

This is the most common loan the SBA offers. It can be used to for loan with or without real estate as collateral including business, equipment, and real estate purchases. This particular loans has a maximum loan amount of $2 million and offers loan terms of up to 25 years on real estate transactions. Loans for working capital, business purchases, debt refinancing, etc... the loan terms are 10 years.

These loans are typically the easiest to qualify for and you can even use projections for start-up businesses or new companies who do not have a 3 year financial history. Recently the SBA has guaranteed these loans up to 90% which has spurred many lenders eagerness to originate these loans. This is typically a variable rate loan, but there are lenders out there who will offer this loan with fixed rates.

SBA 504 (CDC) Loans

This loan is typically used for companies looking for long-term financing and usually for the purchase of real estate or physical buildings. Loan amounts for this loan type are increased to a $5 million maximum, but there are discussions of raising this amount. If companies are willing to "Go Green" and make some changes to their building that save energy, etc... the SBA already offers larger loan amounts as a benefit in hopes that more companies will be eager to make these energy conservation changes.

The SBA 504 loan has 2 parts. The commercial lender will provide a 1st Trust Deed on the loan with a loan-to-value (LTV) that does not exceed 50%. The Certified Development Company (CDC), a non-profit corporation that facilitates economic development in a specific geographical area, will provide a 2nd Trust Deed not to exceed 40% of the purchase price.

The borrower is expected to have at least 10% for a down payment. This amount may increase depending on the property type, location, cash flow, borrower strength, etc...

The SBA also recently changed many terms with the approval of the American Recovery and Reinvestment Act of 2009. Some changes included a temporary waiver of SBA guarantee fees (this applies to all SBA loans), as well as allowing qualified borrowers to refinance their current SBA loans and roll over up to half of the total cost of the purchase or pending expansion. Certain restrictions and rules apply.

Eligibility Requirements

* Size of business - business must be independently owned and operated and must meet the employment and sales standards set by the SBA.

* Type of business -Loan proceeds cannot be used for non-profit work, gambling, speculation, lending or investment, illegal business activities, pyramid schemes, monopolies, or real property to be sold at a later date

* Purpose of loan - Funds may be used to establish a new business; operating, acquiring or expanding an existing business; purchase land or buildings; real estate construction for business; long term working capital; refinance existing debt with unreasonable terms; working capital, and more

Application Process

You will find that the application process is not much different than most loans. Many people have heard rumors that SBA loans take much longer and require much more paperwork than traditional commercial loans. While the SBA does a few more forms to complete, most of the extra forms only ask for signatures, checking of boxes, and basic information. If you are working with a lender who is a member of the preferred lender program (PLP) then the process is very quick because they underwrite the loan in house and have the ability to approve the loan at their facility. They still need to get a PLP number for the approval, but the SBA will give that the same day in most cases. If you are working with a lender who is not a PLP lender then you could see the delays that some people have complained about because those lenders must submit the entire loan package and wait for the SBA approval before they can approve the loan.

Basic loan information collected includes: business tax returns, business financial statements, personal tax returns, personal financial statement, business debt schedule, schedule of real estate owned, personal resumes, photos of the property, business history, credit authorization, AR and AP aging lists, source and use of funds breakdown, and possibly future income projections. Depending on the company, experience, etc... more documents may be required.

Posted by Chad Pitt
Sr. Vice President
Commercial Alternative 
Phone (714) 594-3426 
Fax (866) 724-8171

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