SBA Loans

SBA 504, 7a, and Express Loans

SBA 7(a)

SBA 504

SBA Green Program

SBA Eligibility

SBA Loans for Businesses

Overview of SBA Lending

SBA Loans are commercial loans extended to new and existing small businesses. They are backed by the US government via SBA. The Backing is the implicit SBA guarantee that guarantees between 50-90% of the loan in the case of default. Thus loan approvals for SBA loans are higher than conventional Bank loans they are also more expensive due to the inherent risk in spite of the SBA guarantee.

SBA loans are ONLY for “owner occupied” properties, where the borrower will use or currently occupies at least 51% of the property for their business.

SBA products flexible underwriting guidelines due to the guarantee however pricing and cost will be higher vs conventional bank financing.

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SBA 7(a) Financing

  • Rates: 4.5-7%
  • Terms: 7-25 years
  • Loan Amounts: Up to $5,000,000
  • Minimum Debt Service Coverage Ratio: 1.1
  • The SBA 7(a) is the Small Business Administration’s Most popular lending program which allows for 90% SBA guarantee and higher approval rates vs declines than any other SBA product. Loans can be as much as $5 million.

    Programs under the 7(a) program include: SBA Express Lender Structured Loans, Export Express lender structured loans and lines of credit, International Trade Loan, Export Working Capital Loan, CAPLines (Seasonal, Contract, Builders, Working Capital).

    Use of SBA 7(a) loan proceeds are for:

    – Starting a new business
    – Purchasing an existing business
    – Purchase a building
    – Purchasing and Construct a new building
    – Renovating and Rahabing an existing building
    – Working Capital
    – Purchasing of inventory
    – Purchasing fixed assets
    – Purchasing raw materials
    – Leasehold improvements
    – Refinancing and consolidation of business debts

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    SBA 504 Financing

  • Rates: 4-7%
  • Terms: 10-20 years
  • The SBA 504 exists to help small business owners purchase and refinance long term debt collateralize by fixed assets. Fixed assets such at commercial buildings and business equipment qualify as the proper collateral assets for the programs.

    Typical use of funds is to purchase and renovate OR lease and renovate commercial buildings.

    The SBA guarantee maximum is 5.5MM. Thus the a limit on the total loan structure for SBA 504 commercial loan. You could have a 15MM loan package where by the SBA guarantee is 5.5MM.

    The SBA 504 loan is administered through three parties know as CDS’s. or Comunity Development Corporations. They are a non-profits and administer the SBA loan portion. Under the SBA 504 program the borrower would have to put up 10% of the loan request, the bank would agree to put up 50% and the CDC would agree to put up the remaining 40% of the loan.

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    SBA Green Program

  • Rates: 4.5%-7.5%
  • Terms: Up to 20 years
  • The SBA launched a Green Program to incentivize businesses to reduce energy consumption or generate renewable energy. Under this program, business owners qualify for SBA 504 financing are ELIGIBLE FOR UNLIMITED SBA 504 loans.

    Thus, a business owners looking for additional financing for property are eligible for additional SBA’s loans even after they have reached their maximum of 5MM SBA guarantee. (No one person can use more than 5MM of sba 7a or 504 loan guarantees)

    To qualify, you must either:

    – Reduce your business’ energy consumption by 10% or more
    – Use hybrid or alternative fuel vehicles
    – Use energy-efficient appliances
    – Install a more efficient HVAC system
    – Improve insulation (windows & skylights)
    – Use LED lighting

    OR

    – Generate renewable energy or renewable fuels
    – Solar panels
    – Wind turbines

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    Eligibility For SBA Financing

  • Must be for-profit
  • Meet SBA’s definition of small business
  • Do business within the United States
  • Must have reasonable amount of equity in the small business
  • Have a valid need for the SBA loan
  • Purpose for the SBA loan must be for a valid business purpose
  • Can not be delinquent on any debt held by the governments
  • Ineligible Businesses

  • Financial businesses
  • Developers and Rentals
  • Life insurance companies
  • Foreign Businesses
  • Businesses that have one-third of revenue come from legal gambling activities
  • Businesses that are engaged in any illegal activity
  • Businesses principally engaged in religion or religious belief
  • Companies primarily engaged in political or lobbying activities
  • Speculative companies
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