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SBA Loans

The Small Business Administration (SBA) is an independent agency founded in 1953 with a focus to aid, counsel and protect small business interests.   See www.sba.gov.  The SBA participates in a number of loan programs designed for business owners who may have trouble qualifying for a traditional bank loan.  It is important to understand, any SBA loans are actually made through banks, credit unions and other lenders who partner with the SBA which guarantees (will repay the lending institution should the loan default) a portion of the loan to increase the probability a loan will be made.  Further, the interest rate charged and repayment period established are predetermined by the type of SBA loan.

 

The SBA supports many types of loans but the primary ones are:

 

  • Basic 7(a) Loan Program - Gives 7(a) loans to eligible borrowers for starting, acquiring and expanding a small business. This type of loan is the most basic and the most used within SBA's business loan programs. Borrowers must apply through a participating lender institution.

 

  • 504 Loan Program - Provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.

 

  • Microloan Program - Offers very small loans to start-up, newly established or growing small business concerns. SBA makes funds available to nonprofit community based lenders which, in turn, make loans to eligible borrowers in amounts up to a maximum of $50,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level.

 

Each of the loan programs has specific requirements and qualifications.   Also, remember that the actual loans are not made by the SBA but by other lending institutions which may have their own additional requirements. 

 

Key Underwriting Issues -

  • Lending institutions working with the SBA will look for cash earnings (after non-cash deductions such as depreciation and amortization) large enough to cover future debt obligations. 

  • Will often require a personal guarantee of the borrower.

  • Lending entities that wish to see that the borrower has personal financial commitment (aka skin in the game) in the business.

  • Often times, lender will also look for post-closing liquidity.  That is a fancy way to say that once the loan is completed, there is enough cash available to service the business and weather a hiccup.