SBA Loan Programs
SBA loan 7(a) program is the SBA’s primary program for providing financial assistance to small businesses. The terms and conditions, like the guaranty percentage and loan amount, may vary by the type of loan.
- Maximum loan amount: $5 million
- Maximum SBA guarantee %: 85% for loans up to $150,000 and 75% for loans greater than $150,000
- Interest rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum
- Eligibility decision: By the SBA. Qualified lenders may be granted delegated authority (PLP) to make eligibility determinations without SBA review.
- Revolving lines of credit: Up to 10 years
- SBA turnaround time: 5-10 business days
- Forms: SBA Form 1919 and SBA Form 1920 are required for every loan (other SBA Forms may be required)
- Collateral: Lenders are not required to take collateral for loans up to $25,000. For loans in excess of $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (using 10% of current book value for the calculation), and must take available equity in the personal real estate (residential and investment) of the principals as collateral.
Credit decision: By the SBA. Qualified lenders may be granted delegated authority (PLP) to make credit decisions without SBA review.
The SBA 504 Loan program is a powerful economic development loan program that offers small businesses another avenue for business financing, while promoting business growth, and job creation. As of February 15, 2012, the $50 Billion in 504 loans has created over 2 million jobs. This program is a proven success and win-win-win for the small business, the community and participating lenders.
The 504 Loan Program provides approved small businesses with long-term, fixed-rate financing used to acquire fixed assets for expansion or modernization. 504 loans are made available through Certified Development Companies (CDCs), SBA’s community based partners for providing 504 Loans.
A Certified Development Company (CDC) is a nonprofit corporation that promotes economic development within its community through 504 Loans. CDCs are certified and regulated by the SBA, and work with SBA and participating lenders (typically banks) to provide financing to small businesses, which in turn, accomplishes the goal of community economic development.
504 Loans are typically structured with SBA providing 40% of the total project costs, a participating lender covering up to 50% of the total project costs, and the borrower contributing10% of the project costs. Under certain circumstances, a borrower may be required to contribute up to 20% of the total project costs.
SBA 504 loans
The use of proceeds from 504 Loans must be used for fixed assets (and certain soft costs), including: • The purchase of existing buildings; • The purchase of land and land improvements, including grading, street improvements, utilities, parking lots and landscaping; • The construction of new facilities or modernizing, renovating or converting existing facilities; • The purchase of long-term machinery; or • The refinancing of debt in connection with an expansion of the business through new or renovated facilities or equipment. There are over 260 CDCs nationwide each having a defined Area of Operations covering a specific geographic area. The area of operation for most CDCs is the state in which they are incorporated. To contact a CDC in your area, first use this link to locate your local SBA District Office
504 Loan Benefits for the Small Business
The 504 Loan program offers small businesses both immediate and long-term benefits, so business owners can focus on growing their business. Some of the top-level benefits include: • 90% financing; • Longer loan amortizations, no balloon payments; • Fixed-rate interest rates; and • Savings that result in improved cash flow for small businesses.