Congress created the U.S. Small Business Administration (SBA) in 1953 to help America’s entrepreneurs form successful small enterprises. Today, SBA offices in every state , the District of Columbia, the Virgin Islands and Puerto Rico offer financing, training and advocacy for small firms. The Agency also works with thousands of lending, educational and training institutions nationwide.
The SBA enables its lending partners to provide financing to small businesses when funding is otherwise unavailable on reasonable terms by guaranteeing major portions of loans made to small businesses.The Agency does not currently have funding for direct loans nor does it provide grants or low interest rate loans for business start-up or expansion.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 partner 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 lending partner for a portion of its loss.By providing this guaranty, the SBA is able to help 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 SBA’s criteria, and the lender must certify that it could not provide funding on reasonable terms without an SBA guaranty.The SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000. In most cases, the maximum guaranty is $1 million. There are higher loan limits for International Trade, defense-dependent small firms affected by defense reductions, and Certified Development Company loans.How It WorksOnce a small business borrower meets the lender’s requirements for credit, the lender may request a guaranty from the SBA through SBALowDoc procedures. It’s a quick, two-step process:The borrower completes the front of the SBA’s one-page application, and the lender completes the back.
The lender submits a complete application to the SBA and receives an answer within 36 hours.Interest RatesInterest rates can be negotiated between the borrower and lender, may be fixed or variable, are tied to the prime rate (as published in the Wall Street Journal), and may not exceed the following SBA maximums:Follows 7(a) Interest Rate structureCollateralTo secure the loan, the borrower must pledge available business and personally owned assets. Loans are not declined when inadequate collateral is the only unfavorable factor.
Personal guaranties of the principals are required.MaturityLength of time for repayment depends on:Ability to repay, and
The use of the loan proceeds.
Maturity is usually 5 to 10 years. For fixed-asset loans it can be up to 25 years.EligibilityA business is usually eligible for the SBALowDoc if:The purpose of the loan is to start or grow a business;
The existing business employs no more than 100 people, has average annual sales for the preceding three years not exceeding $5 million, and the business including affiliates; the business and its owners have good credit; and the business owners are of good character.Issue: SBALowDoc
Loan Limit: $150,000
Maximum SBA
Guaranty %: 85%
Guaranty Fee: 2% on Guaranteed Portion
Eligibility Decision: Relies Heavily on Lender Checklist
But SBA Still Reviews
Revolving Lines
of Credit: Not permitted
Turnaround Time: 100% Within 36 Hours
Forms: Revised 1 Page Application Form That Requires More Data, But Same for ALL SBALowDoc Loans Regardless of Amount
Collateral: Follows 7(a) Policy – Lack of available collateral will not be the sole basis for decline of any loan
Credit Decision: By SBA With Credit Scoring
Reconsideration: Permitted in Field Offices Under SBALowDoc or Regular 7(a) Policies and Procedures.
Secondary Market: Can Be Sold
Lender Oversight: Field Offices Responsible for Lender Review as Coordinated with OFA and OFO in HQ
Liquidation: Lender Liquidates Non-Realty BEFORE Buyback
For More InformationThe 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 1-800-U-ASK-SBA. To send a fax to the SBA, dial 202-205-7064. For the hearing impaired, the TDD number is 704-344-6640. For information on your rights to regulatory fairness, the telephone number is 1-800-REG-FAIR.For questions concerning SBA LowDoc processing, please contact a LowDoc processing center:
LowDoc Processing Center in Hazzard, KY – (606) 436-0801
LowDoc Processing Center in Sacramento, CA – Phone: 916-930-2410; Fax: 916-930-2180To access the agency’s electronic public information services, you may contact:U.S. Business Advisor: www.business.gov
For a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, call your local SBA office or the SBA Answer Desk.All of the SBA’s programs and services are provided to the public on a nondiscriminatory basis.
*Last Modified: 10-09-01