When applying for a SBA loan, you must prepare a written loan proposal. Make your best presentation in the initial loan proposal and application; you may not get a second opportunity. Always begin your proposal with a cover letter or executive summary.
Clearly and briefly explain who you are, your business background, the nature of your business, the amount and purpose of your loan request, your requested terms of repayment, how the funds will benefit your business, and how you will repay the loan. Keep this cover page simple and direct.
Many different loan proposal formats are possible. You may want to contact your commercial lender to determine which format is best for you. When writing your proposal, don't assume the reader is familiar with your industry or your individual business. Always include industry-specific details so your reader can understand how your particular business is run and what industry trends affect it.
SBA Loans - Describing Your Business
Provide a written description of your business, including the following information:
- Type of organization
- Date of information
- Product or service
- Brief history
- Proposed Future Operation
Management Experience: Resumes of each owner and key management members.
Personal Financial Statements: SBA requires financial statements for all principal owners (20% or more) and guarantors. Financial statements should not be older than 90 days. Make certain that you attach a copy of last year's federal income tax return to the financial statement.
Loan Repayment: Provide a brief written statement indicating how the loan will be repaid, including repayment sources and time requirements. Cash-flow schedules, budgets, and other appropriate information should support this statement.
Existing Business: Provide financial statements for at least the last three years, plus a current dated statement (no older than 90 days) including balance sheets, profit & loss statements, and a reconciliation of net worth. Aging of accounts payable and accounts receivables should be included, as well as a schedule of term debt. Other balance sheet items of significant value contained in the most recent statement should be explained.
Proposed Business: Provide a pro-forma balance sheet reflecting sources and uses of both equity and borrowed funds.
Projections: Provide a projection of future operations for at least one year or until positive cash flow can be shown. Include earnings, expenses, and reasoning for these estimates. The projections should be in profit & loss format. Explain assumptions used if different from trend or industry standards and support your projected figures with clear, documentable explanations.
Other Items As They Apply:
- Lease (copies of proposal)
- Franchise Agreement
- Purchase Agreement
- Articles of Incorporation
- Plans, Specifications
- Copies of Licenses
- Letters of Reference
- Letters of Intent
- Partnership Agreement
Collateral: List real property and other assets to be held as collateral. Few financial institutions will provide non-collateral based loans. All loans should have at least two identifiable sources of repayment. The first source is ordinarily cash flow generated from profitable operations of the business. The second source is usually collateral pledged to secure the loan.
Raising Startup Capital
The 5 C's of Credit
Your bank is in business to make money. Consequently, when a bank lends money it wants to ensure that it will be paid back. The bank must consider the 5 "C's" of Credit each time it makes a loan.
Capacity to repay is the most critical of the five factors. The prospective lender will want to know exactly how you intend to repay the loan. The lender will consider the cash flow from the business, the timing of the repayment, and the probability of successful repayment of the loan. Payment history on existing credit relationships - personal and commercial - is considered an indicator of future payment performance. Prospective lenders also will want to know about your contingent sources of repayment.
Capital is the money you personally have invested in the business and is an indication of how much you will lose should the business fail. Prospective lenders and investors will expect you to contribute your own assets and to undertake personal financial risk to establish the business before asking them to commit any funding. If you have a significant personal investment in the business you are more likely to do everything in your power to make the business successful.
Collateral or guarantees are additional forms of security you can provide the lender. If the business cannot repay its loan, the bank wants to know there is a second source of repayment. Assets such as equipment, buildings, accounts receivable, and in some cases, inventory, are considered possible sources of repayment if they are sold by the bank for cash. Both business and personal assets can be sources of collateral for a loan. A guarantee, on the other hand, is just that - someone else signs a guarantee document promising to repay the loan if you can't. Some lenders may require such a guarantee in addition to collateral as security for a loan.
Conditions focus on the intended purpose of the loan. Will the money be used for working capital, additional equipment, or inventory? The lender will also consider the local economic climate and conditions both within your industry and in other industries that could affect your business.
Character is the personal impression you make on the potential lender or investor. The lender decides subjectively whether or not you are sufficiently trustworthy to repay the loan or generate a return on funds invested in your company. Your educational background and experience in business and in your industry will be reviewed. The quality of your references and the background and experience of your employees will also be considered.
SBA Loans - Small Business Financing
While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second. Whether you're starting a business or expanding one, sufficient ready capital is essential. But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing money.
Before inquiring about financing, ask yourself the following:
- Do you need more capital or can you manage existing cash flow more effectively?
- How do you define your need? Do you need money to expand or as a cushion against risk?
- How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for money under pressure.
- How great are your risks? All businessess carry risks, and the degree of risk will affect cost and available financing alternatives.
- In what state of development is the business? Needs are most critical during transitional stages.
- For what purposes will the capital be used? Any lender will require that capital be requested for very specific needs.
- What is the state of your industry? Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.
- Is your business seasonal or cyclical? Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.
- How strong is your management team? Management is the most important element assessed by money sources.
- Perhaps most importantly, how does your need for financing mesh with your business plan? If you don't have a business plan, make writing one your first priority. All capital sources will want to see your for the start-up and growth of your business.
There are two types of financing: equity and debt financing. When looking for money, you must consider your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've invested in your business. The more money owners have invested in their business, the easier it is to attract financing.
If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won't be over-leveraged to the point of jeopardizing your company's survival.
Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California's Silicon Valley is a well-known example of capitalist investing.
SBA Loans - Venture Capitalists
Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or innovative advantage, and industry growth are also major concerns.
Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.
You may contact these investors directly, although they typically make their investments through referrals. The SBA also licenses Small Business Investment Companies (SBICs) and Minority Enterprise Small Business Investment companies (MSBIs), which offer equity financing. Apple Computer, Federal Express and Nike Shoes received financing from SBICs at critical stages of their growth.
There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.
Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA's programs have been an integral part of the success stories of thousands of firms nationally.
Every business is unique, from size to operating costs to credit histories. Finding, applying for, and securing the right loan for your business will depend on these factors and many others. So which loan is right for your needs? Here is an overview of some of the loan programs available.
Banks and other lending institutions offer a number of SBA guaranteed loan programs to assist small businesses. While SBA itself does not make loans, it does guarantee loans made to small businesses by private and other institutions.
SBA Loans - Loan Programs
Below is an overview of SBA’s guaranteed loan programs.
7(a) Loan Program:
This is SBA’s primary and most flexible loan program, with financing guaranteed for a variety of general business purposes. It is designed for start-up and existing small businesses, and is delivered through commercial lending institutions.
The 7(a) Loan Program is SBA’s primary program to help start-up and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels. The name comes from section 7(a) of the Small Business Act, which authorizes SBA to provide business loans to American small businesses. SBA itself does not make loans, but rather guarantees a portion of loans made and administered by commercial lending institutions.
7(a) loans are the most basic and most commonly used type of loans. They are also the most flexible, since financing can be guaranteed for a variety of general business purposes, including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets.
Most American banks participate in the program, as do some non-bank lenders, which expands the availability of loans. Participating lenders agree to structure loans according to SBA's requirements, and apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guarantee 7(a) loans—the lender and SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is against payment default; it does not cover imprudent decisions by the lender or misrepresentation by the borrower.
The major types of 7(a) loans are:
SBA’s Express programs offer streamlined and expedited loan procedures for particular groups of borrowers.
SBA Express gives small business borrowers an accelerated turnaround time for SBA review; a response to an application will be given within 36 hours.
The Community Express loan program allows approved SBA lenders to provide a unique combination of financial and technical assistance to borrowers located in the nation’s underserved communities. Eligible communities include SBA’s Historically Underutilized Business Zones and those communities identified as distressed through the Community Reinvestment Act. To encourage small businesses start-ups, SBA makes eligible loans of $25,000 or less, regardless of where small businesses are located.
The Patriot Express Program is designed for small businesses that are 51 percent or more owned / controlled by veterans or members of the military community.
Export Loan Programs
SBA has placed a priority on helping small business exporters—some 70 percent of all U.S. exporters have 20 or fewer employees—with a number of loan programs specifically designed to help them develop or expand their export activities.
SBA Export Express helps small businesses develop or expand their export markets. The program provides exporters and lenders a streamlined method to obtain SBA-backed financing for loans and lines of credit up to $250,000.
Most banks in the U.S. do not lend against export orders, export receivables or letters of credit. SBA temporarily provides lenders with up to a 90 percent guaranty on export loans as a credit enhancement to encourage participating banks to make loans that make the necessary export financing available.
Lenders use their own credit decision process and loan documentation. SBA provides an expedited eligibility review and provides a response in less than 24 hours, so exporters get access to funds faster.
How Funds May Be Used
Loan proceeds may be used to finance any export development activity, including:
- Standby letters of credit when required as a bid bond, performance bond or advance payment guarantee
- Participation in a foreign trade show
- Translation of product brochures or catalogs for use in overseas markets
- General lines of credit for export purposes
- Service contracts from buyers located outside the United States
- Transaction-specific financing needs associated with completing actual export orders
- Purchase of real estate and equipment to be used in the production of goods or services for export
- Providing term loans and other financing to enable small business concerns, including export trading companies and export management companies, to develop foreign markets
- Acquisition, construction, renovation, modernization, improvement or expansion of productive facilities or equipment to be used in the United States in the production of goods or services for export
SBA Export Express loans are available to businesses that meet the normal requirements for an SBA 7(a) business loan guaranty. Financing is available for manufacturers, wholesalers, export trading companies and service exporters. Loan applicants must demonstrate that the loan proceeds will enable them to enter a new export market or expand an existing export market. Applicants must have been in business, though not necessarily in exporting, for at least 12 months.
The maximum line of credit/loan amount is $250,000. The Recovery Act temporarily provides up to a 90 percent guaranty on Export Express loans. It is anticipated this increased guaranty will last through the end of calendar year 2009, or until the appropriated funds are exhausted, whichever comes first. Normally, the lender receives an 85 percent guaranty for loan amounts up to $150,000 and 75 percent on loan amounts between $150,000 and $250,000.
The maturity of an SBA Export Express term loan is usually 5 to 10 years for working capital, 10 to 15 years for machinery and equipment (not to exceed the useful life of the equipment), and up to 25 years for real estate. The maturity for revolving lines of credit may not exceed 7 years.
The SBA does not establish or subsidize interest rates on loans. Interest rates are negotiated between the borrower and the lender, but may never exceed SBA interest rate caps. Rates can either be fixed or variable, and are tied to the prime rate as published in The Wall Street Journal, the one-month LIBOR rate, or the optional peg rate published quarterly in the Federal Register.
The SBA fee for an Export Express loan with a 12-month maturity or less is ¼ percent (0.25 percent) assessed on the guaranteed portion of the loan. For loan maturities longer than 12 months, the normal guaranty fee is 2 percent on loans up to $150,000 and 3 percent on loans between $150,000 and $250,000. However, the Recovery Act temporarily provides for a guaranty fee elimination on all 7(a) and 504 loans. It is anticipated this elimination will last through calendar year 2009 or until the appropriated funds for this provision are exhausted, whichever comes first.
Lenders follow collateral policies and procedures that the lender has established for its non-SBA-guaranteed loans.
Because many small business exporters face unique problems and challenges, the SBA Export Express Program also includes technical assistance in the form of marketing, management and planning assistance. SBA’s U.S. Export Assistance Centers provide technical assistance in cooperation with SBA’s network of resource partners, including Small Business Development Centers (SBDCs) and Service Corps of Retired Executives (SCORE).
On approval of an SBA Export Express loan, a U.S. Export Assistance Center representative will contact the borrower to offer appropriate assistance, which may include training through the SBA’s Export Trade Assistance Partnership, SBDC International Trade Center, SCORE, District Export Council, or Export Legal Assistance Network.
How to Apply
Application is made directly to the lender. Lenders use their own application materials in addition to SBA’s Borrower Information Form.
Lenders approve the request and then submit a limited amount of eligibility information to SBA’s National Loan Processing Center. The SBA provides a response within 24 hours.
Interested businesses should contact their existing lender to determine if it is an SBAExpress lender. Lenders that participate in the SBAExpress program are also able to make Export Express loans.
Export Working Capital Program (EWCP)
SBA’s Export Working Capital Program (EWCP) loans are targeted to small businesses that are able to generate export sales and need additional working capital to support these sales. Since most banks in the U.S. do not lend against export orders, export receivables or letters of credit, SBA provides lenders guaranties of up to 90 percent on export loans to ensure that qualified exporters do not lose viable export sales due to a lack of working capital.
How Funds May Be Used
EWCP loans are used for transaction financing. For example, an EWCP loan will support 100 percent of supplier costs for an export transaction. EWCP loans can also be used to even out cash flow when exporters have negotiated longer sales terms and cannot carry the resulting receivables with their own working capital. The EWCP loan can be a short-term loan for a single contract or in the form of a line of credit that supports ongoing export sales for a period of 12 months.
Eligible transactions include:
The exports being financed must be shipped and titled from the United States; there is no U.S. content requirement for the product being exported.
- The exports must comply with all U.S. Export Administration Regulations and cannot be shipped to a country where the United States has imposed trade embargos or sanctions.
- “Indirect” exports to domestic buyers who subsequently export qualify for EWCP financing.
- Financing for suppliers, inventory or production of export goods.
- Export working capital during long payment cycles.
- Financing for stand-by letters of credit used as bid or performance bonds or down payment guarantees.
- Reserves domestic working capital for the company’s sales within the U.S.
- Permits increased global competitiveness through allowing more liberal sales terms.
- Increases sales prospects in underdeveloped markets that have high capital costs for importers.
- Contributes to the growth of export sales.
- Low fees and quick processing times.
Financing is available for manufacturers, wholesalers, export trading companies and service exporters. EWCP loan borrowers must meet SBA 7(a) eligibility and size standards (less than 500 employees for manufacturers, less than 100 employees for wholesalers) and have been in business for at least one year. SBA can waive the one year in business requirement if the applicant can demonstrate sufficient export expertise and business experience.
The maximum EWCP line of credit/loan amount is $2 million. Participating banks receive a 90 percent SBA guaranty provided that the total SBA-guaranteed portion to the borrower does not exceed $1.5 million. In those instances where the SBA-guaranteed portion reaches the $1.5 million cap, banks can still get a 90 percent guaranty thanks to a co-guaranty program between SBA and the Export-Import Bank of the United States (EXIM). Under this program, the bank still submits only one loan application to the SBA and receives a 90 percent U.S. government guaranty that is backed by both agencies. For the EXIM Bank guaranteed portion, a higher fee may apply.
EWCP loans are typically issued for one year.
The SBA does not establish or subsidize interest rates on loans. The interest rate can be fixed or variable and is negotiated between the borrower and the participant lender.
The SBA fee for an EWCP loan with a 12-month maturity or less is ¼ percent (0.25 percent) assessed on the guaranteed portion of the loan. For example, for a one-year $1 million line of credit with a 90 percent guaranty ($900,000 guaranteed portion), the guaranty fee is $2,250 ($900,000 x 0.25 percent). The SBA can reissue EWCP loans on an annual basis and the guaranty fee remains ¼ percent.
The export-related inventory and the receivable generated by the export sales financed with EWCP funds will be considered adequate collateral. The SBA also requires the personal guarantee of owners with 20 percent or more ownership.
Open Account Terms and Managing Payment Risk
With increasing regularity, foreign buyers are asking for open account terms from their U.S. suppliers. In that situation, small and medium-sized exporters are faced with the prospect of either losing sales to their foreign competitors (who offer terms) or finding a way to balance the increased cash flow strain and the risk of non-payment by the foreign buyer that comes with providing terms. While the SBA EWCP loan can provide cash flow support, it is credit insurance that minimizes the risk of non-payment. Credit insurance is a special insurance product designed to protect a company's trade credit exposure from bad debt loss caused by insolvency, default or political risk. EXIM Bank as well as private sector providers provide credit insurance. The SBA and EXIM Bank have teamed up to provide small businesses that have an EWCP loan with a 25 percent premium discount on an EXIM Bank Small Business Export Credit insurance policy.
How to Apply
A small business applies directly to a participating lender. The lender reviews/approves the application and submits the request to the SBA staff at the U.S. Export Assistance Center location servicing the exporter’s geographic territory.
Exporters can apply for EWCP loans in advance of finalizing an export sale or contract. With an approved EWCP loan in place, exporters have greater flexibility in negotiating export payment terms, secure in the assurance that adequate financing will be in place when the export order is won.
International Trade Loan Program
The International Trade Loan Program offers term loans to businesses that plan to start or continue exporting or that have been adversely affected by competition from imports. The proceeds of the loan must enable the borrower to be in a better position to compete. The program offers borrowers a maximum SBA-guaranteed portion of $1.75 million.
How Funds May Be Used
Funds may be used for the acquisition, construction, renovation, modernization, improvement or expansion of long-term fixed assets or the refinancing of an existing loan used for these same purposes.
International Trade loans are available to small businesses that are in a position to expand existing export markets or develop new export markets, or small businesses that have been adversely affected by international trade and can demonstrate that the loan proceeds will improve their competitive position.
The maximum gross amount ($2 million) and SBA-guaranteed amount ($1.5 million) for an International Trade loan are the same as the basic 7(a) loan. However, there is an exception to the maximum guaranty amount for one borrower. When the borrower has an International Trade loan and a separate working capital loan, the maximum SBA guaranty on the combined loans can be up to $1.75 million as long as the SBA guaranty on the working capital loan does not exceed $1.25 million.
The maturity of an International Trade Loan is usually 10 to 15 years for machinery and equipment (not to exceed the useful life of the equipment), and up to 25 years for real estate.
SBA does not establish or subsidize interest rates on loans. Interest rates are negotiated between the borrower and the lender, subject to SBA caps. Rates can either be fixed or variable, and are tied to the prime rate as published in The Wall Street Journal, the one-month LIBOR rate, or the optional peg rate that is published quarterly in the Federal Register. For loans greater than $50,000 and maturity in excess of seven years, lenders may charge up to 2.75 percent over prime rate.
The SBA guaranty fee is normally between 2 percent and 3.75 percent, depending on the size of the loan. However, as a result of the Recovery Act approved February 17, 2009, guaranty fees on loans with maturities longer than twelve months are temporarily eliminated through the end of the calendar year, or until the funds appropriated for this provision have been exhausted, whichever comes first.
International Trade loans must be secured by a first lien position or first mortgage on the property or equipment financed by the loan. Additional collateral (to the extent it is available) may be accepted to ensure that the loan is fully collateralized.
How to Apply
Interested businesses should apply through a participating lender.
Rural Lender Advantage Program
The Small/Rural Lender Advantage (S/RLA) initiative is designed to accommodate the unique loan processing needs of small community/rural-based lenders by simplifying and streamlining loan application process and procedures, particularly for smaller SBA loans. It is part of a broader SBA initiative to promote the economic development of local communities, particularly those facing the challenges of population loss, economic dislocation, and high unemployment.
The U.S. Small Business Administration (SBA) is introducing a new 7(a) loan initiative designed to accommodate the unique loan processing needs of small community/rural-based lenders, many of which do not make SBA 7(a) loans or make very few SBA loans.
Small/Rural Lender Advantage (S/RLA) is part of a broader SBA initiative to promote the economic development of local communities, particularly those facing the challenges of population loss, economic dislocation, high unemployment, etc. This initiative is part of the Agency’s 7(a) loan guaranty program and is designed to encourage small community/rural lenders to partner with SBA by simplifying and streamlining the Agency’s loan application process and procedures, particularly for smaller SBA loans.
SBA introduced and tested this initiative for several months in its Region VIII district offices (CO, MT, ND, SD, UT, and WY). After additional streamlining and enhancement, the Agency is expanding Small/Rural Lender Advantage nationally under the following schedule, which is tentative and could change slightly depending the timing of additional staffing at SBA’s loan processing center.
Local SBA districts will have current scheduling information.
Special Purpose Loans Program
SBA offers several special purpose 7(a) loans to aid businesses that have been impacted by NAFTA, to provide financial assistance to Employee Stock Ownership Plans, and to help implement pollution control mechanisms.
The Community Adjustment and Investment Program (CAIP) was established to assist U.S. companies doing business in areas of the country that have been negatively affected by NAFTA. CAIP loans allow for the payment of fees on eligible loans, including the 7(a) Loan Program guaranty fee and the 504 program guaranty and CDC and lender fees. Depending on the size of the loan, these fees can be sizeable. CAIP works with SBA to reduce borrower costs and increase the availability of these programs.
To be eligible for CAIP, the small business must reside in a county, or a defined area within a county, noted as being negatively affected by NAFTA based on job losses and the unemployment rate of the county. There is also a job creation component. For 7(a) loans, one job has to be created for every $70,000 SBA guaranty. For 504 loans, one job has to be created for every $65,000 SBA guaranty.
Eligible CAIP Communities
Currently, over 230 counties in 29 states are designated as eligible for CAIP.
CAPLines is an umbrella program that helps small businesses meet their short-term and cyclical working-capital needs. It features five lines:
- Seasonal Line. Borrowers must use the loan proceeds solely to finance the seasonal increases of accounts receivable and inventory (or in some cases associated increased labor costs); it can be revolving or non-revolving.
- Contract Line. This line finances the direct labor and material cost associated with performing assignable contract(s); it can be revolving or non-revolving.
- Builders Line. If you are a small general contractor or builder constructing or renovating commercial or residential buildings, this can finance direct labor and material costs. The building project serves as the collateral, and loans can be revolving or non-revolving.
- Standard Asset-Based Line. This is an asset-based revolving line of credit for businesses unable to meet credit standards associated with long-term credit. It provides financing for cyclical growth, recurring and/or short-term needs. Repayment comes from converting short-term assets into cash, which is remitted to the lender. Businesses continually draw from this line of credit, based on existing assets, and repay as their cash cycle dictates. This line generally is used by businesses that provide credit to other businesses. Because these loans require continual servicing and monitoring of collateral, additional fees may be charged by the lender.
- Small Asset-Based Line. This is an asset-based revolving line of credit of up to $200,000. It operates like a standard asset-based line except that some of the stricter servicing requirements are waived, providing the business can consistently show repayment ability from cash flow for the full amount.
Maximum Loan Amounts
Except for the Small Asset-Based Line, which has a maximum loan amount of $200,000, CAPLine loans follow SBA's maximum loan amounts.
Each of the five lines of credit has a maturity of up to five (5) years. But because each is tailored to an individual business’s needs, a shorter initial maturity may be established. CAPLines funds can be used as needed throughout the term of the loan to purchase short-term assets, as long as sufficient time is allowed to convert the assets into cash at maturity.
Holders of at least 20 percent ownership in the business are generally required to guarantee the loan. Although inadequate collateral will not be the sole reason for denial of a loan request, the nature and value of that collateral does factor into the credit decision.
This program is designed to provide financial assistance to Employee Stock Ownership Plans. The employee trust must be part of a plan sponsored by the employer company and qualified under regulations set by either the Internal Revenue Service Code (as an Employee Stock Ownership Plan, or ESOP) or the Department of Labor (the Employee Retirement Income Security Act, or ERISA). Applicants covered by the ERISA regulations must also secure an exemption from the Department of Labor regulations prohibiting certain loan transactions.
SBA can assist qualified employee trusts that meet the requirements and conditions for an Employee Stock Ownership Plan as prescribed in all applicable IRS, Treasury, and Department of Labor regulations. The small business must provide all the funds needed to collateralize and repay the loan. A qualified employee trust may either re-lend proceeds to the employer by purchasing qualified employer securities, or purchase a controlling interest in the employer.
Loan Amounts Available
A maximum loan amount of $2 million has been established for 7(a) loans. However, the maximum dollar amount SBA can guarantee is generally $1.5 million. Small loans carry a maximum guaranty of 85 percent. Loans are considered small if the gross loan amount is $150,000 or less. For loans greater than $150,000, the maximum guaranty is 75 percent. The Recovery Act temporarily increases guaranty percentages on most 7(a) loans to up to 90 percent through the end of the calendar year 2009, or until appropriated funds are exhausted, whichever comes first.
Pollution Control loans are 7(a) loans specifically designated for pollution control. The program provides financing to eligible small businesses for the planning, design, or installation of a pollution control facility. This facility must prevent, reduce, abate, or control any form of pollution, including recycling.
This program follows the guidelines for the 7(a) Loan Program with the following exception: use of proceeds must be for fixed assets only.
CDC/504 Loan Program:
This program provides long-term, fixed-rate financing to acquire fixed assets (such as real estate or equipment) for expansion or modernization. It is designed for small businesses requiring “brick and mortar” financing, and is delivered by CDCs (Certified Development Companies)—private, non-profit corporations set up to contribute to the economic development of their communities.
This program provides small (up to $35,000) short-term loans for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. It is designed for small businesses and not-for-profit child-care centers needing small-scale financing and technical assistance for start-up or expansion, and is delivered through specially designated intermediary lenders (nonprofit organizations with experience in lending and technical assistance).
Disaster Assistance Loan Program:
This program provides low-interest loans to homeowners, renters, businesses of all sizes and most private non-profit organizations to repair or replace real estate, personal property, machinery and equipment, inventory and business assets that have been damaged or destroyed in a declared disaster.
Industry-specific loans. Depending on your business, you may be able to select from among loans designed for industries and trades.
CAPLines consist of five loan programs for financing the short-term and cyclical working capital needs for various small businesses, including seasonal, contract, standard-asset-based and small-asset-based businesses. These loans are generally guaranteed up to $750,000 by the SBA.
International trade loans (ITL) offer short- and long-term financing to small export businesses. The SBA can guarantee up to $1.25 million for a combination of fixed asset financing and working capital.
Pollution-control loans might be the answer to your financing needs if your company designs, builds, installs, or services pollution control facilities.
Home equity.If you are comfortable securing your loan with some or all of your home's equity, you can take out a home equity loan. Before you stake your house on the prospects of your business, make sure you know how much working capital you will need, and calculate the amount of business you will have to do to ensure that you don't lose both your home and your business.
A strong Business Plan may not guarantee success; but it could certainly prevent failure!
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