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An Overview of SBA Lending

D Brentnall 2015
Darrin Brentnall
Vice President, Relationship Manager/SBA
[email protected]
(585) 394-4260 x36021

The Small Business Administration (SBA) works with lenders to provide loans to small businesses. Instead of lending money directly to business owners, they work with the lenders to guarantee the loans and reduce the risk. 

Eligibility Requirements

Generally speaking, eligibility is based on type of business, the character of its ownership, and where the business operates. Businesses must meet size standards, show the ability to repay the loan, and have a sound business purpose. They must also: 

  • Be a for-profit business – registered and operating legally. 
  • Do business in the USA – must be physically located in the US or one of its territories. 
  • Have invested equity – the business owner has invested their own time and money into the business.
  • Exhausted other financing options – the business is unable to get funds from conventional sources. This does not mean that the borrower needs to demonstrate that it has been declined by a financial institution, but the lender providing the SBA loan certifies that funding is not available to the borrower from other sources. 

Types of SBA Loans

Standard 7(a) – Maximum loan amount is $5 million. Maximum guaranty amounts are 85% for loans up to $150,000 and 75% for loans greater than $150,000. The eligibility and credit decision is made by the SBA, and their turnaround time is between 5 - 10 business days from the time the loan application is submitted by the lender. 

7(a) PLP - PLP is the preferred lenders program. Qualified lenders are delegated authority by the SBA to make eligibility and credit decisions without SBA review. This speeds up the turnaround time considerably. 

7(a) Small Loan – Maximum loan amount is $350,000. Maximum guaranty amounts are 85% for loans up to $150,000 and 75% for loans greater than $150,000. The credit decision is made through a credit scoring model so the turnaround time is faster.

SBA Express – Maximum loan amount is $350,000. The maximum guaranty amount is 50%. The eligibility and credit decision is made by the lender. 

Export Express – This program provides exporters and lenders with a streamlined method to obtain SBA backed financing up to $500,000. The SBA turns these loans around in 24 hours. The maximum guaranty amount is 90% for loans of $350,000 or less, and 75% for loans over $350,000. 

Export Working Capital – Loans are for businesses that have export sales and need additional working capital to support these sales. Maximum loan amount is $5 million and the maximum guaranty amount is 90%. The eligibility and credit decision is made by the SBA and the turnaround time is 5 - 10 days. 

International Trade - Provides long-term financing to businesses that are expanding because of growing export sales, or have been adversely effected by imports and need to modernize in order to compete with foreign competition. Businesses can use this type of loan for construction, to purchase fixed assets, or for working capital for export transactions. The maximum loan amount is $5 million and the maximum guaranty is 90%. The eligibility and credit decision is made by the SBA. 

Veterans Advantage – Veteran-owned businesses are one of the fastest growing segments of the US economy. SBA loans to a veteran-owned business come with reduced fees. To be eligible to receive reduced fees through this program, the business must be owned at least 51% and controlled by one of the following: 

  • Honorably discharged veterans 
  • Service disabled veterans 
  • Active duty military eligible for the military’s Transition Assistance Program 
  • Reservists and National Guard members 
  • Any current spouse of one of the above mentioned groups or the widowed spouse of a service member who died while in service or as the result of a service-related disability. 

CAPLines – This is an umbrella program that helps small businesses with short-term and cyclical working capital needs. The following are the different kind of CAPLines in the program: 

  • Seasonal CAPLine – used solely for financing seasonal increases of accounts receivable and inventory. 
  • Contract CAPLine – used to finance direct labor and material costs associated with performing contracts that are assignable. 
  • Builders CAPLine – used to finance direct labor and material costs for small general contractors/builders that are building/ renovating commercial/residential buildings. The building project is used as collateral. 
  • Working CAPLine – this is an asset-based revolving line of credit. The business continually draws from this line based on existing assets and repays as their cash cycle dictates.

SBA 504 Loans – 504 loans are a great option for businesses in need of financing for the acquisition or improvement of owner occupied real estate and/or equipment. They can also be used to refinance debt that was used for these purposes. This program is attractive to a lot of businesses because it can have low down payments (as low as 10%), and it can also have attractive long term fixed interest rates. 

Call our Commercial Lending Team today at (585) 419-0670 to discuss your SBA financing options.

This material provided by Darrin Brentnall. Source: SBA.gov.