SBA Basic 7(a) Loan Program PDF
7(a) loans are the most basic and most
used type of loan in the Small Business Administration’s
(SBA’s) business loan programs. All 7(a) loans are provided
by lenders who are called participants because they participate
with SBA in the 7(a) program.
7(a) loans are only available on a guaranty basis. This means they are provided
by lenders who choose to structure their own loans by SBA's requirements
and who 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 a guarantee against payment default.
Under the guaranty concept, commercial lenders make and administer the loans.
The business applies to a lender for their financing. The lender decides
if they will make the loan internally or if the application has some weaknesses
which, in their opinion, will require an SBA guaranty if the loan is to be
made. The guaranty which SBA provides is only available to the lender. It
assures the lender that in the event the borrower does not repay their obligation
and a payment default occurs, the Government will reimburse the lender for
its loss, up to the percentage of SBA's guaranty.
Eligibility Criteria
All businesses that are considered for financing under SBA’s 7(a) loan
program must: meet SBA size standards, be for-profit, not already have the
internal resources (business or personal) to provide the financing and be
able to demonstrate repayment. Certain variations of SBA’s 7(a) loan
program may also require additional eligibility criteria. Special purpose
programs will identify those additional criteria.
Other Aspects of the Basic 7(a) Loan Program
In addition to credit and eligibility criteria, an applicant should be aware
of the general types of terms and conditions they can expect if SBA is involved
in the financial assistance. The specific terms of SBA loans are negotiated
between an applicant and the participating financial institution, subject
to the requirements of SBA. In general, the following provisions apply to
all SBA 7(a) loans. However, certain loan programs or lender programs vary
from these standards. These variations are indicated for each program.
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SBA (504) Loan Program PDF
The 504 Program provides growing
businesses with long-term, fixed-rate financing for major fixed
assets, such as land and buildings. Typically, a 504 project
includes a loan secured with a senior lien from a private-sector
lender covering up to 50 percent of the project cost, a loan
secured with a junior lien from a local or regional community
development corporation (backed by a 100 percent SBA-guaranteed
debenture) covering up to 40 percent of the cost and a contribution
of at least 10 percent equity from the small business being helped.
Maximum Debenture
The maximum SBA debenture is $1,500,000 when meeting the job creation criteria
or a community development goal. Generally, a business must create or retain
one job for every $50,000 provided by the SBA, except for "Small Manufacturers," which
have a $100,000 job creation or retention goal (see below).
The maximum SBA debenture is $2.0 million when meeting a public policy goal.
The public policy goals are as follows:
- Business district revitalization
- Expansion of exports
- Expansion of minority business development
- Rural development
- Increasing productivity and competitiveness
- Restructuring because of federally mandated standards or
policies
- Changes necessitated by federal budget cutbacks
- Expansion of small business concerns owned and controlled
by veterans (especially service-disabled veterans)
- Expansion of small business concerns owned and controlled
by women
The maximum debenture for "Small Manufacturers" is
$4.0 million. A Small Manufacturer is defined as a small business
concern that has:
- Its primary business classified in sector 31, 32, or 33 of
the North American Industrial Classification System (NAICS)
and
- All of its production facilities located in the United States.
In order to qualify for a $4 million 504 loan,
the Small Manufacturer must (1) meet the definition of a Small
Manufacturer described above, and (2) either (i) create or retain
at least 1 job per $100,000 guaranteed by the SBA [Section 501(d)(1)
of the Small Business Investment Act (SBI Act)], or (ii) improve
the economy of the locality or achieve one or more public policy
goals [sections 501(d)(2) or (3) of the SBI Act].
What Funds May Be Used For
Proceeds from 504 loans must be used for fixed asset projects such as: purchasing
land and improvements, including existing buildings, grading, street improvements,
utilities, parking lots and landscaping; construction of new facilities,
or modernizing, renovating or converting existing facilities or purchasing
long-term machinery and equipment. The 504 Program cannot be used for working
capital or inventory, consolidating or repaying debt or refinancing.
Terms, Interest Rates and Fees
Interest rates on 504 loans are pegged to an increment above the current
market rate for five-year and 10-year U.S. Treasury issues. Maturities of
10 and 20 years are available. Fees total approximately three (3) percent
of the debenture and may be financed with the loan.
Collateral
Generally, the project assets being financed are used as collateral. Personal
guaranties of the principal owners are also required.
Eligible Businesses
To be eligible, the business must be operated for profit and fall within
the size standards set by the SBA. Under the 504 Program, the business qualifies
as small if it does not have a tangible net worth in excess of $7 million
and does not have an average net income in excess of $2.5 million after taxes
for the preceding two years. Loans cannot be made to businesses engaged in
speculation or investment in rental real estate.
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SBA Micro-Loans PDF
The Micro-Loan Program provides very small
loans to start-up, newly established or growing small business
concerns. Under this program, the Small Business Administration
(SBA) makes funds available to nonprofit community based lenders
(intermediaries) which in turn make loans to eligible borrowers
in amounts up to a maximum of $35,000. The average loan size
is about $10,500. Applications are submitted to the local intermediary,
and all credit decisions are made on the local level.
Terms, Interest Rates and Fees
The maximum term allowed for a micro-loan is six years. However, loan terms
vary according to the size of the loan, the planned use of funds, the requirements
of the intermediary lender and the needs of the small business borrower.
Interest rates vary depending upon the intermediary lender and costs to the
intermediary from the U.S. Treasury.
Collateral
Each intermediary lender has its own lending and credit requirements. However,
business owners contemplating application for a micro-loan should be aware
that intermediaries will generally require some type of collateral and the
personal guarantee of the business owner.
Technical Assistance
Each intermediary is required to provide business based training and technical
assistance to its micro-borrowers. Individuals and small businesses applying
for micro-loan financing may be required to fulfill training and/or planning
requirements before a loan application is considered.
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These are merely brief descriptions of the programs
and are not intended to fully disclose all the requirements and
criteria for these programs. More information regarding these
programs and other SBA services can be found at http://www.sba.gov/.
USDA Business and Industry Guaranteed
Loans PDF
The U.S. Department
of Agriculture’s Business and Industry (B&I) Guaranteed
Loan Program helps create jobs and stimulates rural economies
by providing financial backing for rural businesses. This program
provides guarantees up to 80 percent of a loan made by a commercial
lender. Loan proceeds may be used for working capital, machinery
and equipment, buildings and real estate and certain types of
debt refinancing. The primary purpose is to create and maintain
employment and improve the economic climate in rural communities.
This is achieved by expanding the lending capability of private
lenders in rural areas, helping them make and service quality
loans that provide lasting community benefits. This program represents
a true private-public partnership.
B&I loan guarantees can be extended to loans made by recognized commercial
or other authorized lenders in rural areas (this includes all areas other
than cities of more than 50,000 people and the contiguous and urbanized area
of such cities or towns). Generally, authorized lenders include Federal or
State chartered banks, credit unions, insurance companies, savings and loan
associations, Farm Credit Banks or other Farm Credit System institutions
with direct lending authority, a mortgage company that is part of a bank
holding company and the National Rural Utilities Finance Corporation.
Assistance under the B&I Guaranteed Loan Program is available to virtually
any legally organized entity, including a cooperative, corporation, partnership,
trust or other profit or nonprofit entity, Indian tribe or federally recognized
tribal group, municipality, county or other political subdivision of a state.
Applicants need not have been denied credit elsewhere to apply for this program.
The maximum aggregate B&I Guaranteed Loan(s) amount that can be offered
to any one borrower under this program is $25 million. A maximum of 10 percent
of program funding is available to value-added cooperative organizations
for loans above $25 million to a maximum aggregate of $40 million.
The program is administered at the State level
by Rural Development State Offices.
For more information regarding this or other
USDA programs contact:
Gerald A. Townsend, USDA Business and Community Program Director, at (217)
403-6209.
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USDA Revolving Loan Funds and
Technical Assistance PDF
Intermediary Relending Program Loans
USDA Rural Development lends funds
to intermediaries, which, in turn, provide loans to finance business
facilities and community development projects. Projects must
be located in rural areas, which for the purposes of this program,
excludes cities with a population of 25,000 or more. Eligible
intermediaries include public bodies, nonprofit corporations,
Indian tribes, and cooperatives.
Rural Business Enterprise Grant Program
This program offers grants to public bodies, nonprofit corporations,
and federally recognized Indian tribal groups to finance and
facilitate development of small and emerging businesses located
in rural areas.
Grant funds may be used for:
- Acquisition and development of land and the
construction of buildings, plants, and equipment, access streets
and roads, parking areas and utility and service extensions;
- Revolving loan funds;
- Fees for professional services, technical
assistance, etc.
Rural Business Opportunity Grant Program
Under this program, funds are available for technical assistance
and planning activities to improve economic conditions in rural
areas.
Applicants must be located in rural areas (areas
other than cities or towns of more than 50,000 people and the
contiguous and adjacent areas of such cities or towns).
Rural Economic Development Loan and Grant
Program
Loans and grants under this program are made to Rural Development
Utilities Programs-financed telephone and electric borrowers
to promote rural economic development and/or job creation projects
in non-urban areas. Eligible purposes include, but are not limited
to, project feasibility studies, startup costs, incubator projects,
and other reasonable expenses. The maximum loan and grant to
any eligible recipient is established on an annual basis.
Rural Business Investment Program
The Rural Business Investment Program (RBIP) promotes rural economic
development through venture capital investment by for-profit
Rural Business Investment Companies (RBICs).
USDA licenses newly formed for-profit entities
as RBICs and provides financial assistance to fund their rural
area investment activities. Additionally, USDA awards Operational
Assistance grants to each RBIC for providing technical assistance
to smaller enterprises.
As required in the authorizing statute, USDA
has delegated to the Small Business Administration many of the
day-to-day responsibilities for the RBIP, including receipt of
applications and most of the selection process for licensing
as an RBIC. More information about all aspects of the RBIP is
available in the regulations authorizing the program, at 7 CFR
part 4290.
Renewable Energy and Energy Efficiency
Improvement Grants
This program provides grants, loans, and loan guarantees to eligible
farmers, ranchers, and rural small businesses to assist in developing
renewable energy systems and make energy efficient improvements.
Projects provided assistance must be located in a rural area
(any area other than cities or towns of greater than 50,000 population
and the immediate and adjacent urbanized areas of the cities
or towns.
Eligible small businesses include sole proprietorships,
partnerships, corporations, and cooperatives organized in accordance
with 501c(12) of the Internal Revenue Code. In addition, the
applicant must meet the Small Business Administration’s
Small Business size standards.
For More Information
Detail information and applications for financial assistance
are available through State and local offices of USDA Rural
Development. Some of the authorized programs described above
require the implementation of regulations before they are available
for funding projects. Consult your USDA Rural Development State
Office for information on fund availability.
For more information on USDA Rural Development
Business Programs, you may also call the Rural Development National
Office at (202) 720-0813 or connect to the Rural Development
Web site: http://www.rurdev.usda.gov.
SOURCE: USDA Rural Development Rural Business-Cooperative
Programs brochure
