The SBA offers a
variety of financing options for small businesses. The Small Business
Administration (SBA) is the largest source of long-term small business
financing in the nation. In order to determine whether you qualify for, or if
an SBA business loan best suits your financing needs, please read this material
carefully. If you have further questions, please contact your banker, one of
the active SBA guaranteed
lenders, or an SBA
loan officer.
The 7(a) Loan
Guaranty Program
The 7(a) Loan
Guaranty Program is the SBA's primary loan program. The SBA reduces risk to
lenders by guaranteeing major portions of loans made to small businesses. This
enables the lenders to provide financing to small businesses when funding is
otherwise unavailable on reasonable terms.
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 institution 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
institution 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 7(a) criteria, and the lender must
certify that it could not provide funding on reasonable terms except with an
SBA guaranty. The SBA can then 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. Exceptions are the International Trade, DELTA
and 504 loan programs, which have higher loan limits. The maximum total loan
size under the 7(a) program is $2 million.
How it Works
You submit a loan application
to a lender for initial review. If the lender approves the loan subject to an
SBA guaranty, a copy of the application and a credit analysis are forwarded by
the lender to the nearest SBA office. After SBA approval, the lending
institution closes the loan and disburses the funds. You make monthly loan
payments directly to the lender.
As with any loan, you
are responsible for repaying the full amount of the loan. There are no balloon
payments, prepayment penalties, application fees or points permitted with 7(a)
loans. Repayment plans may be tailored to each business.
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