Role in Providing Business Loans to America’s Small
The U.S. Small Business Administration (SBA) is an independent
Agency of the Executive Branch of the Federal Government. It is
charged with the responsibility of providing four primary areas
of assistance to American Small Business. These are: Advocacy,
Management, Procurement, and Financial Assistance. Financial Assistance
is delivered primarily through SBA’s Investment programs,
Business Loan Programs, Disaster Loan Programs, and Bonding for
SBA Business Loan Programs
SBA administers three separate, but equally important business
loan programs. SBA sets the guidelines for the loans while SBA’s
partners (Lenders, Community Development Organizations, and Microlending
Institutions) make the loans to small businesses. SBA backs those
loans with a guaranty that will eliminate some of the risk to
the lending partners. The Agency's Loan guaranty requirements
and practices can change however as the Government alters its
fiscal policy and priorities to meet current economic conditions.
Therefore, past policy cannot always be relied upon when seeking
assistance in today's market.
Federal appropriations are available to the SBA to provide guarantees
on loans structured under the Agency's requirements. With a loan
guaranty, the actual funds are provided by independent lenders
who receive the full faith and credit backing of the Federal Government
on a portion of the loan they make to small business.
The loan guaranty which SBA provides transfers the risk of borrower
non-payment, up to the amount of the guaranty, from the lender
to SBA. Therefore, when a business applies for an SBA Loan, they
are actually applying for a commercial loan, structured according
to SBA requirements, which receives an SBA guaranty.
In a variation of this concept, community development organizations
can get the Government's full backing on their loan to finance
a portion of the overall financing needs of an applicant small
The SBA offers numerous loan programs to assist small businesses.
It is important to note, however, that the SBA is primarily a guarantor
of loans made by private and other institutions.
PROGRAM: Basic 7(a) Loan Guaranty
FUNCTION: Serves as the SBA’s primary business loan program
to help qualified small businesses obtain financing when they might
not be eligible for business loans through normal lending channels.
It is also the agency’s most flexible business loan program,
since financing under this program can be guaranteed for a variety
of general business purposes.
Loan proceeds can be used for most sound business purposes including
working capital, machinery and equipment, furniture and fixtures,
land and building (including purchase, renovation and new construction),
leasehold improvements, and debt refinancing (under special conditions).
Loan maturity is up to 10 years for working capital and generally
up to 25 years for fixed assets.
CUSTOMER: Start-up and existing small businesses, commercial lending
DELIVERED THROUGH: Commercial lending institutions
SBA offers multiple variations of the basic 7(a) loan program
to accommodate targeted needs.
PROGRAM: Certified Development Company (CDC), a 504 Loan Program
FUNCTION: Provides long-term, fixed-rate financing to small businesses
to acquire real estate or machinery or equipment for expansion
or modernization. Typically a 504 project includes a loan secured
from a private-sector lender with a senior lien, a loan secured
from a CDC (funded by a 100 percent SBA-guaranteed debenture) with
a junior lien covering up to 40 percent of the total cost, and
a contribution of at least 10 percent equity from the borrower.
The maximum SBA debenture generally is $1 million (and up to $1.3
million in some cases).
CUSTOMER: Small businesses requiring “brick and mortar” financing
DELIVERED THROUGH: Certified development companies
(private, nonprofit corporations set up to contribute to the economic
development of their communities or regions)
PROGRAM: Microloan, a 7(m) Loan Program
FUNCTION: Provides short-term loans of up to $35,000 to small
businesses and not-for-profit child-care centers for working capital
or the purchase of inventory, supplies, furniture, fixtures, machinery
and/or equipment. Proceeds cannot be used to pay existing debts
or to purchase real estate. The SBA makes or guarantees a loan
to an intermediary, who in turn, makes the microloan to the applicant.
These organizations also provide management and technical assistance.
The loans are not guaranteed by the SBA. The microloan program
is available in selected locations in most states.
CUSTOMER: Small businesses and not-for-profit child-care centers
needing small-scale financing and technical assistance for start-up
DELIVERED THROUGH: Specially designated intermediary lenders (nonprofit
organizations with experience in lending and in technical assistance)
PROGRAM: Loan Prequalification
FUNCTION: Allows business applicants to have their loan applications
for $250,000 or less analyzed and potentially sanctioned by the
SBA before they are taken to lenders for consideration. The program
focuses on the applicant’s character, credit, experience
and reliability rather than assets. An SBA-designated intermediary
works with the business owner to review and strengthen the loan
application. The review is based on key financial ratios, credit
and business history, and the loan-request terms. The program is
administered by the SBA’s Office of Field Operations and
SBA district offices.
CUSTOMER: Designated small businesses
DELIVERED THROUGH: Nonprofit intermediaries such as small business
development centers and certified development companies operating
in specific geographic areas.
HOW TO GET AN SBA LOAN
One of the most important sources for small business financing
is the Small Business Administration (SBA). The
SBA provides short- and long-term loans to eligible, credit-worthy
start-ups and existing small businesses that cannot obtain financing
on reasonable terms through normal lending channels.
Note, however, that the SBA does not provide direct loans. Rather,
the agency provides guarantees to loans available through the SBA's
partner lending institutions, which include many community banks.
The SBA provides loan programs for most business purchases, including
purchasing real estate, machineries and equipment, inventory, and
To be eligible for an SBA loan, the borrower must meet
- A strong business plan. Like banks and other
financial institutions, the SBA requires the submission of a
business plan to see that the entrepreneur possesses a clear
understanding of the business they're in, have taken steps to
research the market, and studied the prospects of the business.
The SBA wants to see detailed plans on how the business can make
money and repay the loan.
- A good personal credit rating. Credit history
serves as a person's gauge for credit worthiness. The borrower's
track record in paying their bills will is an important component
in the loan application process. The SBA partner banks, which
provide the money, conduct a credit examination of the borrower
then submits the results to the SBA.
- The borrower must have a stake in the business. The
SBA wants to see those applying for credit to have a personal
investment in their business. In the SBA's view, business owners
who have put their own money into the venture are much more likely
to push hard for the success of their business. The SBA will
require the borrower to contribute at least 25% of the loan amount
from his or her personal liquid assets.
SBA Funding in tandem with personal cash from your pension plan:
Now you can get this 25% portion from your 401(k) or
IRA account, in cash, without paying any taxes or penalties,
by transferring these qualified funds into a PENSION TRANSFER
To see if your new business will be eligible for an SBA
loan, or to learn more about the pension transfer procedure,
please inquire by calling 800-782-3036 or Contact