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How To Get Money for A Small Business
|In addition to drive, ambition and a great
deal of planning, starting and expanding a small business generally
requires capital. Capital may come from family, friends, lenders or
others. This Financial Guide provides an overview of how to get the
capital you need to start or grow your business.
TABLE OF CONTENTS
Finding Sources Of Money
How To Write A Loan Proposal
How Your Loan Request Will Be Reviewed
One key to successful business start-up and expansion is your ability
to obtain and secure appropriate financing. Raising capital is one of the
most basic of all business activities. But as many new entrepreneurs
quickly discover, raising capital may not be easy; in fact, it can be a
complex and frustrating process.
However, if you are informed and have planned effectively, raising
money for your business will not be a painful experience. Professional
guidance should be considered in this quest, especially as to the
financial information for the loan proposal.
This Financial Guide focuses on ways a small business can raise money
and explains how to prepare a loan proposal.
There are several sources to consider when looking for financing. It is
important to explore all of your options before making a decision. These
- Personal Savings. The primary source of capital for
most new businesses comes from savings and other forms of personal
resources. While credit cards are often used to finance business
needs, there may be better options available, even for very small
- Friends And Relatives. Many
entrepreneurs look to private sources such as friends and family when
starting out in a business venture. Often, money is loaned interest
free or at a low interest rate, which can be beneficial when getting
- Banks And Credit Unions. The most common source of
funding, banks and credit unions, will provide a loan if you can show
that your business proposal is sound.
- Venture Capital Firms. These firms help expanding
companies grow in exchange for equity or partial ownership.
It is often said that small business people have a difficult time
borrowing money. This is not necessarily true. Banks make money by lending
money. However, the inexperience of many small business owners in
financial matters often prompts banks to deny loan requests.
Requesting a loan when you are not properly prepared sends a signal to
your lender. That message is: "High Risk!" To be successful in
obtaining a loan, you must be prepared and organized. You must know
exactly how much money you need, why you need it, and how you will pay it
back. You must be able to convince your lender that you are a good credit
Terms of loans may vary from lender to lender, but there are two basic
types of loans: short-term and long-term.
A short-term loan generally have has a maturity of up one year.
These include working-capital loans, accounts-receivable loans and lines
Long-term loans have maturates greater than one year but
usually less than seven years. Real estate and equipment loans may have
maturates of up to 25 years. Long-term loans are used for major
business expenses such as purchasing real estate and facilities,
construction, durable equipment, furniture and fixtures, vehicles, etc.
Approval of your loan request depends on how well you present yourself,
your business and your financial needs to a lender. Remember, lenders want
to make loans, but they must make loans they know will be repaid. The best
way to improve your chances of obtaining a loan is to prepare a written
A good loan proposal will contain the following key elements:
- Business name, names of principals, social security number for each
principal, and the business address.
- Purpose of the loan: exactly what the loan will be used for and why it
- Amount required: the exact amount you need to achieve your purpose.
- History and nature of the business: details of what kind of business
it is, its age, number of employees and current business assets.
- Ownership structure: details on your company's legal structure.
Develop a short statement on each principal in your business; provide
background, education, experience, skills and accomplishments.
Clearly define your company's products as well as your markets.
Identify your competition and explain how your business competes in the
marketplace. Profile your customers and explain how your business can
satisfy their needs.
- Financial statements: balance sheets and income statements for the
past three years. If you are just starting out, provide projected
balance sheets and income statements.
- Personal financial statements on yourself and other principal owners
of the business.
- Collateral you would be willing to pledge as security for the loan.
When reviewing a loan request, the bank official is primarily concerned
about repayment. To help determine this ability, many loan officers will
order a copy of your business credit report from a credit-reporting
agency. Therefore, you should work with these agencies to help them
present an accurate picture of your business. Using the credit report and
the information you have provided, the lending officer will consider the
- Have you invested savings or personal equity in your business
totaling at least 25% to 50% of the loan you are requesting?
(Remember, a lender or investor will not finance 100% of your
- Do you have a sound record of credit-worthiness as indicated by your
credit report, work history and letters of recommendation? This is
- Do you have sufficient experience and training to operate a
- Have you prepared a loan proposal and business plan that demonstrate
your understanding of and commitment to the success of the business?
- Does the business have sufficient cash flow to make the monthly
payments on the amount of the loan request?
The SBA offers a variety of financing options for small businesses. The
SBA's assistance usually is in the form of loan guaranties, - i.e., it
guarantees loans made by banks and other private lenders to small business
clients. Generally, the SBA can guarantee up to $750,000 or 75% of the
total loan value, whichever is less. The average size of an SBA-guaranteed
loan is $175,000, and the average maturity is about eight years.
Whether you are looking for a long-term loan for machinery and
equipment, a general working capital loan, a revolving line of credit, or
a "microloan," the SBA has a financing program to fit your
Note: The SBA has a portfolio
guaranteeing over $27 billion in loans to 185,000 small businesses that
otherwise would not have had such access to capital. It guaranteed over
60,000 loans totaling $9.9 billion to America's small businesses in fiscal
year 1995. It also gives management and technical assistance to nearly 1
million small businesses through its 950 Small Business Development
Centers and 13,000 Service Corps of Retired Executives volunteers.
The 7(a) Loan Guaranty Program, financing that can satisfy the
requirements of almost any new or growing small business. The SBA offers a
number of specialized loan and lender delivery programs.
The 7(a) Loan
Guaranty Program is the SBA's primary loan program. The SBA reduces
risk to lenders by guaranteeing major portions of loans made to small
businesses. This enables the lenders to provide financing to small
businesses when funding is otherwise unavailable on reasonable terms.
The eligibility requirements and credit criteria of the program are
very broad in order to accommodate a wide range of financing needs.
When a small business applies to a lending institution for a loan, the
lender reviews the application and decides if it merits a loan on its own
or if it requires additional support in the form of an SBA guaranty. SBA
backing on the loan is then requested by the lender. In guaranteeing the
loan, the SBA assures the lender that, in the event the borrower does not
repay the loan, the government will reimburse the lender for its loss. By
providing this guaranty, the SBA helps tens of thousands of small
businesses every year get financing they would not otherwise obtain.
To qualify for an SBA guaranty, a small business must meet the 7(a)
criteria and the lender must certify that it could not provide funding on
reasonable terms except with an SBA guaranty. The SBA can then guarantee
as much as 80% on loans of up to $100,000 and 75% on loans of more than
$100,000. In most cases, the maximum guaranty is $750,000 (75% of $1
million). Exceptions are the International Trade, DELTA and 504 loan
programs, which have higher loan limits.
How The Procedure Works. You submit a loan
application to a lender for initial review. If the lender approves the
loan subject to an SBA guaranty, a copy of the application and a credit
analysis are forwarded by the lender to the nearest SBA office. After SBA
approval, the lending institution closes the loan and disburses the funds;
you make monthly loan payments directly to the lender. As with any loan,
you are responsible for repaying the full amount of the loan. There are no
balloon payments, prepayment penalties, application fees or points
permitted with 7(a) loans. Repayment plans may be tailored to each
Permissible Use of Proceeds. You can use
a 7(a) loan to: expand or renovate facilities; purchase machinery,
equipment, fixtures and leasehold improvements; finance receivables and
augment working capital; refinance existing debt (with compelling reason);
finance seasonal lines of credit; construct commercial buildings; and/or
purchase land or buildings.
Terms. The length of time for repayment depends on
the use of the proceeds and the ability of your business to repay:
- Usually up to 7 years for working capital, and
- Up to 25 years for fixed assets such as the purchase or major
renovation of real estate or purchase of equipment (not to exceed the
useful life of the equipment).
Interest Rates. Both fixed and variable interest rates are
available. Rates are pegged at no more than 2.25% over the lowest prime
rate (the lowest prime rate as published in The Wall Street Journal
on the day the application is received by the SBA) for loans with
maturates of less than seven years and up to 2.75% for seven years or
longer. For loans under $50,000, rates may be slightly higher.
Fees. The SBA charges the lender a nominal
fee to provide a guaranty, and the lender may pass this charge on to you.
The fee is based on the maturity of the loan and the dollar amount that
the SBA guarantees. On any loan with a maturity of one year or less, the
fee is just 0.25% of the guaranteed portion of the loan. On loans with
maturates of more than one year where the portion that the SBA guarantees
is $80,000 or less, the guaranty fee is 2% of the guaranteed portion. On
loans with maturates of more than one year where the SBA's portion exceeds
$80,000, the guaranty fee is figured on an incremental scale, beginning at
Collateral. You must pledge sufficient assets, to
the extent that they are reasonably available, to adequately secure the
loan. Personal guaranties are required from all the principal owners of
the business. Liens on personal assets of the principals also may be
required. However, in most cases a loan will not be declined where
insufficient collateral is the only unfavorable factor.
Eligibility. Your business generally must be
operated for profit and fall within the size standards set by the SBA. The
SBA determines if the business qualifies as a small business based on the
average number of employees during the preceding 12 months or on sales
averaged over the previous three years. Loans cannot be made to businesses
engaged in speculation or investment.
Maximum Size Standards. The precise ceiling depends upon
your company’s Standard Industrial Classification (SIC) code.
- Manufacturing - from 500 to 1,500 employees;
- Wholesaling - 100 employees;
- Services - from $2.5 million to $21.5 million in annual receipts;
- Retailing - from $5 million to $21 million;
- General construction - from $13.5 million to $17 million;
- Special trade construction - average annual receipts not to exceed
- Agriculture - from $0.5 million to $9 million;
Here are the ceilings at which businesses are ineligible to
What You Need to Take to the Lender. Documentation
requirements may vary; contact your lender for the information you must
supply. Common requirements include the following:
- Purpose of the loan;
- History of the business;
- Financial statements for three years (existing businesses);
- Schedule of term debts (existing businesses)
- Aging of accounts receivable and payable (existing businesses);
- Projected opening day balance sheet (new businesses);
- Lease details;
- Amount of investment in the business by the owner(s);
- Projections of income, expenses and cash flow;
- Signed personal financial statements;
- Personal resume(s);
What the SBA Looks For. Here are the qualifications the
SBA is on the lookout for:
- Good character;
- Management expertise and commitment necessary for success;
- Sufficient funds, including the SBA-guaranteed loan, to operate the
business on a sound financial basis (for new businesses, this includes
the resources to withstand start-up expenses and the initial operating
- Feasible business plan
- Adequate equity or investment in the business;
- Sufficient collateral;
- Ability to repay the loan on time from the projected operating cash
In addition to the standard loan guaranty, the SBA has targeted
programs under 7(a) that are designed to meet specialized needs. Unless
otherwise indicated, they are governed by the same rules, regulations,
interest rates, fees, etc. as the regular 7(a) loan guaranty.
Loan Program is the program under which the SBA helps small businesses
meet their short-term and cyclical working-capital needs. A CAPLines loan
can be for any dollar amount (except for the Small Asset-Based Line), and
the SBA will guarantee 75% up to $750,000 (80% on loans of $100,000 or
There are five short-term working-capital loan programs for small
businesses under CAPLines:
- Seasonal Line. This line advances funds against anticipated
inventory and accounts receivables for peak seasons and seasonal sales
fluctuations. It can be revolving or non-revolving.
- Contract Line. This line finances the direct labor and
material costs 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 line can finance your 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 that 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, 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.
Use of Proceeds. CAPLines may be used to:
- Finance seasonal working-capital needs;
- Finance direct costs needed to perform construction, service and
- Finance direct costs associated with commercial and residential
building construction without a firm commitment for purchase;
- Finance operating capital by obtaining advances against existing
inventory and accounts receivable; or
- Consolidate short-term debt.
Terms. Each of the five lines of credit has a
maturity of up to five years, but, because each is tailored to your
individual needs, a shorter initial maturity may be established. You may
use CAPLines funds as needed throughout the term of the loan to purchase
assets, as long as sufficient time is allowed to convert the assets into
cash by maturity.
Interest rates are negotiated with your lender, up to 2.25% over the
The guaranty fee is the same as for any standard 7(a) loan. The SBA places
no servicing-fee restrictions on the lender for the Standard Asset-Based
Line but requires full disclosure to ensure that fees are reasonable. On
all other CAPLines, the servicing fee is restricted to 2% based on the
average outstanding balance.
Collateral. The primary collateral will be the
short-term assets financed by the loan.
The International Trade Program
International Trade Program helps small businesses that are engaged in
international trade, preparing to engage in international trade, or
adversely affected by competition from imports.
The SBA can guarantee as much as $1.25 million in combined
working-capital and fixed-asset loans. The working-capital portion of the
loan may be made according to the provisions of the Export Working Capital
Program (see below) or other SBA working-capital programs.
Use of Proceeds. Proceeds may be used for:
- Working capital; and/or
- Purchasing land and buildings, building new facilities; renovating,
improving or expanding existing facilities; purchasing or
reconditioning machinery, equipment and fixtures; and making other
improvements that will be used within the United States to produce
goods or services for export.
Proceeds may not be used to repay existing debt.
Terms, Interest Rates and Fees. Loans for
facilities or equipment can have maturates of up to 25 years. The working
capital portion of a loan under Export Working Capital Program provisions
has a maximum maturity of three years. Rates and fees are the same as for
the general 7(a) loan.
Collateral. The lender must take a first-lien
position (or first mortgage) on items financed under an international
trade loan. Only collateral located in the United States, its territories
and possessions is acceptable as collateral under this program. Additional
collateral may be required, including personal guaranties, subordinate
liens or items that are not financed by the loan proceeds.
The Export Working
Capital Program was developed in response to the needs of exporters
seeking short-term working capital. The SBA guarantees 90% of the
principal and interest, up to $750,000.The EWCP uses a one-page
application form and streamlined documentation, and turnaround is usually
within 10 days. You may also apply for a letter of pre-qualification from
You may have other current SBA guaranties, as long as the SBA's
exposure does not exceed $750,000 for all of your loans. When an EWCP loan
is combined with an international trade loan, the SBA's exposure can go up
to $1.25 million.
Terms. Typically, EWCP loan maturates either match
a single transaction cycle or support a line of credit, generally with a
term of 12 months. Unlike other 7(a) programs, interest rates and fees are
negotiated between you and your lender. The SBA charges the lender a
nominal guaranty fee, which may be passed on to you.
If you own a defense-dependent small firm adversely affected by defense
cuts, DELTA can help you diversify into the commercial market. The
DELTA (Defense Loan and Technical Assistance) Program provides both
financial and technical assistance. A joint effort of the SBA and the
Department of Defense, it offers about $1 billion in gross lending
The SBA processes, guarantees and services DELTA loans through the
regulations, forms and operating criteria of the 7(a) Program and the 504
Certified Development Company Program. Maximum Loan Amount. The
maximum gross loan amount under 7(a) is $1.25 million for a DELTA loan.
The maximum guaranty under 504 is $1 million. If both types of loans are
used or if there is an existing SBA loan, the combined total may not
exceed $1.25 million.
Collateral. DELTA loans may not be typical 7(a) or
504 loans and may require special handling because of complicated credit
analyses. While you may have significant collateral, you may not be able
to show the ability to repay based on past operations because of your
firm's state of transition. New revisions to the law allow the SBA to
resolve reasonable doubts in your favor. Eligibility. If seeking a
DELTA loan, you will be required to certify that your company meets DELTA
eligibility standards as well as 7(a) criteria. To be eligible, your
- Meet SBA size standards; and
- Have derived at least 25% of total company revenues during the
preceding fiscal year from Department of Defense contracts,
defense-related contracts with the Department of Energy, or
subcontracts in support of defense-related prime contracts.
In addition, your business must be adversely impacted by reductions in
defense spending and use the loan to retain jobs of defense workers; or be
located in an adversely impacted community and create new economic
activity and jobs; or modernize or expand your plant so it can diversify
operations while remaining in the national technical and industrial base.
If you are a woman or minority who owns or wants to start a business, The
Minority and Women's Pre-qualification Programs can help.
Intermediaries assist you in developing a viable loan application package
and securing a loan. On approval the SBA provides a letter of pre-qualification
you can take to a lender. The women's program uses only
nonprofit organizations as intermediaries; the minority program uses
for-profit intermediaries as well.
Once your loan package is assembled, the intermediary submits it to the
SBA for expedited consideration; a decision usually is made within three
If your application is approved, the SBA issues a letter of pre-qualification
stating the agency's intent to guarantee the loan. The
intermediary will then help you locate a lender offering the most
Maximum Loan Amount.
The maximum amount for loans under the women's program is $250,000;
under the minority program, it is generally the same, although some
district offices set other limits. With both programs, the SBA will
guarantee up to 75% (80% on loans of $100,000 or less).
Intermediaries may charge a reasonable fee for loan packaging. These
programs are available through a number of SBA district offices
nationwide. To find out if these programs are available in your area,
contact your nearest SBA district office.
Here are the eligibility rules for these programs.
- Businesses at least 51% owned, operated and managed by people of
ethnic or racial minorities, or by women;
- Businesses with average annual sales for the preceding three years
that do not exceed $5 million;
- Businesses that employ fewer than 100, including affiliates ; and
- Businesses that are not engaged in speculation or investment.
The LowDoc Loan
Program, which helps streamline delivery of the SBA's quarterly is one
of the SBA's most popular programs. Once you have met your lender's
requirements for credit, LowDoc offers a simple, one-page SBA application
form and rapid turnaround on approvals for loans of up to $100,000 (for
loans over $50,000, you must also provide a copy of U.S. Income Tax
Schedule C or the front page of the corporate or partnership returns for
the past three years). The SBA will guarantee up to 80% of the loan
amount. Completed applications are processed quickly by the SBA, usually
within two or three days. Proceeds may not be used to repay certain types
of existing debt.
The following businesses are eligible:
- Businesses with average annual sales for the past three years not
exceeding $5 million and with 100 or fewer employees, including
- Business start-ups
The SBA Express
(FA$TRAK) Loan Program makes capital available to businesses seeking
loans of up to $100,000 without requiring the lender to use the SBA
process. Lenders use their existing documentation and procedures to make
and service loans. The SBA guarantees up to 50% of a FA$TRAK loan. Your
local SBA office can provide you with a list of FA$TRAK lenders.
Like most 7(a) loans, maturates are usually five to seven years for
working capital and up to 25 years for real estate or equipment. For
revolving credits, you may take up to five years after the first
disbursement to repay the loan.
The most active and expert lenders qualify for SBA's Certified and
Preferred Lenders Program. Participants are delegated partial or full
authority to approve loans, which results in faster service.
Certified lenders are those that have been heavily involved in regular
SBA loan-guaranty processing and have met certain other criteria. They
receive a partial delegation of authority and are given a three-day
turnaround on their applications (they may also use regular processing).
Certified lenders account for 10% of all SBA business loan guaranties.
Preferred lenders are chosen from among the SBA's best lenders and
enjoy full delegation of lending authority. This authority must be renewed
at least every two years, and the lender's portfolio is examined by the
SBA periodically. Preferred loans account for 18% of SBA loans. A list of
participants in the Certified and Preferred Lenders Program may be
obtained from your local SBA office.
The 7(m) MicroLoan Program
The 7(m) MicroLoan
Program provides small loans ranging from under $100 to $25,000. Under
this program, the SBA makes funds available to nonprofit intermediaries;
these, in turn, make the loans. The average loan size is $10,000.
Completed applications usually are processed by the intermediary in less
than one week. This is a pilot program available at a limited number of
Use of Proceeds. Microloans may be used to finance
machinery, equipment, fixtures and leasehold improvements. They may also
be used to finance receivables and for working capital. They may not be
used to pay existing debts.
Terms Interest Rates and Fees. Depending on the
earnings of your business, you may take up to six years to repay a
microloan. Rates are pegged at no more than 4% over the prime rate. There
is no guaranty fee.
Collateral. Each nonprofit lending
organization will have its own requirements, but must take as collateral
any assets purchased with the microloan. In most cases, the personal
guaranties of the business owners are also required.
Eligibility. Virtually all types of for-profit
businesses that meet SBA eligibility requirements qualify.
The Certified Development Company (504) Loan Program
Development Company (504) Loan Program enables growing businesses to
secure long-term, fixed-rate financing for major fixed assets, such as
land and buildings. A certified development company is a nonprofit
corporation set up to contribute to the economic development of its
community or region. CDCs work with the SBA and private-sector lenders to
provide financing to small businesses. There are about 290 CDCs
The program is designed to enable small businesses to create and retain
jobs; the CDC's portfolio must create or retain one job for every $35,000
of debenture proceeds provided by the SBA. Typically, a 504 project
- A loan secured with a senior lien from a private-sector lender
covering up to 50% of the project cost,
- A second loan secured with a junior lien from the cdc (a 100%
sba-guaranteed debenture) covering up to 40% of the project cost, and
- A contribution of at least 10% equity by the borrower.
The maximum SBA debenture generally is $750,000 (up to $1 million in
Use of Proceeds. 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, modernizing, renovating or converting existing
- Purchasing machinery and equipment.
The 504 Program cannot be used for working capital or inventory,
consolidating or repaying debt, or most refinancing.
Terms, Interest Rates and Fees. Interest rates on
504 loans are based on the current market rate for five-year and 10-year
U.S. Treasury issues plus an increment above the Treasury rate, based on
market conditions. Only maturates of 10 and 20 years are available. Fees
total approximately 3% 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.
Eligibility. To be eligible, the business generally
must be operated for profit and fall within the size standards set by the
SBA. Under the 504 Program, a business qualifies as small if it does not
have a tangible net worth in excess of $6 million and does not have an
average net income in excess of $2 million after taxes for the preceding
two years, or if it meets standard 7(a) criteria. Loans cannot be made to
businesses engaged in speculation or investment.
Small Business Investment Company Program
There are a variety of alternatives to bank financing for small
businesses, especially business start-ups. The Small Business Investment
Company Program fills the gap between the availability of venture capital
and the needs of small businesses that are either starting or growing.
Licensed and regulated by the SBA, SBICs are privately owned and managed
investment firms that make capital available to small businesses through
investments or loans. They use their own funds plus funds obtained at
favorable rates with SBA guaranties and/or by selling their preferred
stock to the SBA.
SBICs are for-profit firms whose incentive is to share in the success
of a small business. In addition to equity capital and long-term loans,
SBICs provide debt-equity investments and management assistance.
The SBIC Program provides funding to all types of manufacturing and
service industries. Some investment companies specialize in certain
fields, while others seek out small businesses with new products or
services because of the strong growth potential. Most, however, consider a
wide variety of investment opportunities.
Surety Bond Program
By law, prime contractors to the federal government must post surety
bonds on federal construction projects valued at $100,000 or more. Many
state, county, city and private-sector projects require bonding as well.
The SBA can guarantee bid, performance and payment bonds for contracts up
to $1.25 million for small businesses that cannot obtain bonds through
regular commercial channels. Bonds may be obtained in two ways:
Prior Approval. Contractors apply through a surety
bonding agent. The guaranty goes to the surety.
Preferred Sureties. Preferred sureties are authorized
by the SBA to issue, monitor and service bonds without prior SBA
Shows the due dates for filing tax returns, reporting tax information and taking certain actions to obtain a tax benefit.
Books And Other Publications
- Charles Lickson and Bryan Lickson, Finance
and Taxes for the Home-Based Business, (Crisp Publications,
1997), ISBN 1560523972.
- William G. Droms, Finance
and Accounting for Non-Financial Managers, (Addison-Wesley Publishing,
1990), ISBN 0201523663.
- Lyn M. Fraser and Aileen Ormiston, Understanding
Financial Statements, (Prentice Hall, 1998), ISBN 0136191150.
Government And Non-Profit Agencies
The SBA has offices located throughout the United States. For the one
nearest you, look under "U.S. Government" in your telephone
directory, or call the SBA Answer Desk at (800) 8-ASK-SBA. To send a fax
to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number
is (704) 344-6640.
Here is a handy guide to the various SBA loan programs. Click
here to review a synopses of SBA Loan Programs. If you are
interested in obtaining further information for a specific Loan Program
listed below, click on the Loan Program and you will be brought to the SBA
- Maximum Amount Guaranteed: $750,000 in
most cases Percent of Guarantee (Max.): 75% (80% if total loan is
$100,000 or less)
- Use of Proceeds: Expansion or renovation; construction of
new facility; purchase land or buildings; purchase equipment,
fixtures, leasehold improvements; working capital; refinance debt for
compelling reasons; seasonal line of credit; inventory acquisition
- Maturity. Depends on ability to repay;
generally working capital is up to 7 years; machinery/equipment, real
estate, construction, up to 25 years (not to exceed life of equipment)
Maximum Interest Rates: Negotiable with lender: loans under 7 years,
max. prime + 2.25%; 7 years or more, max. 2.75% over prime; under
$50,000, rates may be slightly higher Guaranty and Other Fees: Paid by
lender (usually passed onto borrower).
- Amount of SBA exposure (based on maturity): 1 year or less
- Over 1 year and SBA share $80,000 or less — 2%;
- Over 1 year and SBA share more than $80,000 — figured on
- Eligibility: Must be operated for profit;
meet SBA size standards; show good character, management expertise and
commitment, and always show ability to repay; may not be involved in
speculation or investment
- Maximum Amount Guaranteed: $750,000 (except Small
Asset-Based); Small Asset-Based $200,000 (total loan amount)
- Percent of Guarantee (maximum): 75%, see 7(a)
- Use of Proceeds: Finance seasonal working-capital needs;
costs to perform; construction costs; advances against existing
inventory and receivables; consolidation of short-term debts possible
- Maturity: Up to 5 years
- Maximum Interest Rates: 2.25%
- Guaranty and Other Fees: See 7(a); Under Standard
Asset-Based, no restrictions on servicing fees
- Eligibility: Existing businesses, see 7(a)
- Maximum Amount Guaranteed: $1.25 million
- Percent of Guarantee (maximum): 75%, see 7(a)
- Use of Proceeds: Working capital; improvements in U.S. for
producing goods or services; may not be used to repay existing debt
- Maturity: Up to 25 years
- Maximum Interest Rates: See 7(a)
- Guaranty and Other Fees: See 7(a)
- Eligibility: Small businesses engaged or preparing to
engage in international trade or adversely affected by competition
from imports; see 7(a) for other qualifications
- Features: 1-page application, fast turnaround; may apply
for pre-qualification letter
- Maximum Amount Guaranteed: $750,000 (may be combined with
International Trade Loan)
- Percent of Guarantee (maximum): 90%, see 7(a)
- Use of Proceeds: Short-term working-capital loans to
finance export transactions
- Maturity: Matches single transaction cycle or generally 1
year for line of credit
- Maximum Interest Rates: No cap
- Guaranty and Other Fees: See 7(a); no restrictions on
- Eligibility: Small business exporters who need short-term
working capital; see 7(a) for other qualifications
- Features: Provides financial and technical assistance to
help defense-dependent firms diversify into commercial market; joint
effort of SBA and DoD
- Maximum Amount Guaranteed: 7(a) or combined with 504: $1.25
million (total loan amount). 504: $1 million SBA share (up to 40% of
- Percent of Guarantee (maximum): Depends on whether done
under 7(a) or 504; see both
- Use of Proceeds: Defense conversion; see
- Maturity: See 7(a), 504
- Maximum Interest Rates: See 7(a), 504
- Guaranty and Other Fees: See 7(a), 504
- Eligibility: Defense-dependent small firms adversely
affected by defense cuts; see 7(a), 504 for qualifications (program
authority will expire 9/30/98)
- Features: Help to prepare application and secure loan; SBA pre-qualification
letter; pilot programs, limited sites
- Maximum Amount Guaranteed: Minority Pre-qualification Loan
Program $250,000 generally (total loan amount); Women's Pre-qualification
Loan Program $250,000 (total loan amount)
- Percent of Guarantee (maximum): 75%, see 7(a)
- Use of Proceeds: See 7(a)
- Maturity: See 7(a)
- Maximum Interest Rates: See 7(a)
- Guaranty and Other Fees: See 7(a); plus minority program
may use for-profit intermediaries; women's program uses nonprofit
only; both may charge fees
- Eligibility: Must be at least 51% owned and operated by
racial/ethnic minority or women; $5 million or less annual sales for
past 3 years; employ 100 or fewer, focus on credit history, ability to
repay, probability of success
- Features: One-page SBA application to obtain guaranty,
quick turnaround after applicant meets lender requirements
- Maximum Amount Guaranteed: $100,000 (total loan amount)
- Percent of Guarantee (maximum): 80%
- Use of Proceeds: Same as 7(a) except may not be used to
repay certain types of existing debt
- Maturity: See 7(a)
- Maximum Interest Rates: See 7(a)
- Guaranty and Other Fees: See 7(a)
- Eligibility: Start-ups and businesses with $5 million or
less annual sales for past 3 years; employ 100 or fewer; program
relies on applicant's character and credit history
- Features: Lender approves loan, no additional paperwork for
SBA; pilot program, limited sites
- Maximum Amount Guaranteed: $100,000 (total loan amount)
- Percent of Guarantee (maximum): 50%
- Use of Proceeds: Same as 7(a); limitations on real estate
and construction; may be used for term loans or revolving credits
- Maturity: Term loan same as 7(a); no more than 5 years on
revolving line of credit
- Maximum Interest Rates: See 7(a)
- Guaranty and Other Fees: See 7(a)
- Eligibility: See 7(a)
- Maximum Amount Guaranteed: $25,000 (total loan amount)
- Percent of Guarantee (maximum):: NA
- Use of Proceeds: Purchase equipment, machinery, fixtures,
leasehold improvements; finance increased receivables; working
capital; may not be used to repay existing debt
- Maturity: Shortest term possible, not to exceed 6 years
- Maximum Interest Rates: Negotiable with intermediary
- Guaranty and Other Fees: No guaranty fee
- Eligibility: Same as 7(a)
- Features: Long-term, fixed-asset loans through nonprofit
development companies; must create or retain 1 job per $35,000 of debenture
- Maximum Amount Guaranteed: Limit on SBA portion of project
is $750,000 to $1 million
- Percent of Guarantee (maximum): 40% of project (100%
SBA-backed debenture); private lender unlimited
- Use of Proceeds: Purchase of major fixed assets such as
land, buildings, improvements, long-term equipment, construction,
- Maturity: 10 or 20 years only
- Maximum Interest Rates: Based on current market rate for 5-
and 10-year Treasury issues, plus an increment above Treasury rate
- Guaranty and Other Fees: Fees related to debenture, approx.
- Eligibility: For-profit businesses that do not exceed $6
million in tangible net worth and did not have average net income over
$2 million for past 2 years