SBA 7A Loans - General Parameters

Monday, August 27, 2007

http://www.intelligentfunding.com/SBA7a.html

One of the SBA's primary loan programs, 7(a) offers loans of up to $2,000,000. (The maximum dollar amount the SBA can guaranty is generally $1 million.)

The Basic Section 7(a) Loan Guaranty Program serves as the SBA's primary business loan program to help qualified small businesses obtain financing when the business might not be eligible for business loans through normal lending channels. It's the SBA's most flexible business loan program. The customers for this program are startup and existing small businesses.

Loans under the 7(a) Program are provided by lenders who are called participants because they "participate" with the SBA in this program. Most American banks participate in this program, although not all lenders do. Loans under the 7(a) Program are available only on a guaranty basis, which means that the loans are provided by lenders who have decided to structure their own loans according to the SBA's requirements, and who apply to and receive from the SBA a guarantee on a portion of the loan. This is not a guaranty for the full amount of the loan; the lender and the SBA both share the risk that a borrower will not be able to repay the loan in full. The guaranty protects against payment default.

SBA 7A Loans - General Parameters

* Loan Purpose: Real estate purchase, business acquisition, business expansion, construction, recapitalization, refinance, partner buyout, start-ups, turn-arounds, working capital, inventory, machinery and equipment. Program is available nationwide to a variety of industries. Lender is an SBA Preferred Lender nationwide.

* Property Types: All property types.

* Loan Amount: Up to $2,000,000

* Interest Rate: Variable interest rate.

* Loan Term: Up to 25 years, fully amortizing

* Prepayment Penalty: May prepay up to 25% during the first 3 years without penalty. Above 25%, prepayment penalty of 5%, 3%, 1%.

* Personal Guarantee: Full guarantee of all principals who own 20% or more of the project.

* Loan to Value (LTV): Up to 90%

* Collateral: Mortgage on business real estate, UCC filings on machinery and equipment.

The SBA uses the following criteria to determine if a business qualifies as a small business that is eligible for SBA loan assistance:

* Construction - Average (three years) annual sales or receipts of not more than $12 million to $28.5 million, depending upon the specific business type;
* Manufacturing and Mining - Depending on the industry, approximately not more than 500 employees
* Retail or Service - Depending on the industry, average (three year) annual sales or receipts of not more than $6 million up to $29 million
* Wholesale - Not more than 100 employees
* Special Trade Contractors - A limit of $7 million
* Agricultural Industries - A limit of $.5 million for most agricultural industries.

Use of Proceeds/Ineligible Use of Proceeds:
The proceeds of a 7(a) loan may be used by a new or existing business to do the following:

* Construct commercial buildings
* Expand or renovate facilities
* Finance receivables and supplement working capital
* Finance seasonal lines of credit
* Purchase machinery, equipment, fixtures, and leasehold improvements
* Purchase land or buildings
* Refinance existing debt, under some circumstances.

The proceeds of a 7(a) loan may not be used for the following purposes:

* For a non-sound business purpose
* To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow
* To make a partial change of ownership or change in the business that will not benefit the business
* To refinance existing debt where the lender might sustain a loss and the SBA would cover the loss through refinancing
* To permit reimbursement of funds owed to any owner of the business.

Downloads:
Download the Initial Application for an SBA 7a Loan in .pdf format.
http://www.intelligentfunding.com/Files/SBA%207a%20Application%20Formi.pdf

Download a Product Brochure about the SBA 7a Loan Program in .pdf format.

Download the SBA document "Small Business Basics" in .pdf format.

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