Tag: sba 7a

SBA Loans for Businesses

SBA Loans for Businesses

The Small Business Administration is a federal government agency which facilitates loans for American small businesses by providing a loan guaranty to the banks that ultimately provide SBA loans.

According to statistics, more than 99 percent of all business entities in the United States are small businesses. These businesses employ more than 50 percent of the private work force, over 40 percent of all private sales, and in excess of 52 percent of the private-sector output.

About the SBA

According to “The SBA Loan Book”,

“SBA” is the acronym for the U.S. Small Business Administration, an agency of the federal government established in 1953 to assist small business enterprises. Arguably the most important programs implemented by the agency are the loan assistance programs, which provide incentive to private sector commercial lenders (banks and certain licensed nonbank lenders) to extend longterm capital financing to qualified, eligible small businesses.

The SBA loan guaranty program has grown steadily over the years as a popular tool for small businesses to obtain capital financing. In 2009, with fluctuating economic conditions, difficult regulatory trends, and a collapse of the secondary market for guaranteed loans, the nation encountered a perfect storm. The agency experienced a rare but notable 37 percent reduction in the number of SBA loans funded (reduction of 30,811 loans), which translated into a 27 percent decline of loan volume ($5,175,000,000 decline).  But even in this disastrous year, the agency assisted with the creation of hundreds of thousands of jobs across thousands of communities in the United States.

The SBA 7a Loan Program

The SBA’s most significant program is the 7a loan program.  Often when SBA loans are referred to, the author is likely referring to the 7a program even if he or she doesn’t reference it specifically.  On the 7a program, the SBA Loan Book states:

The 7(a) loan program is SBA’s primary loan program for helping startup and existing businesses, providing funds for a variety of general business purposes. SBA does not make direct loans. Instead, it provides a credit enhancement to participating lending institutions in the form of a long-term loan guaranty. The costs of reimbursing banks for loan defaults is paid for from fees collected from participating small businesses getting loans and the lenders that fund them. While the guaranty reduces the risk to the lender, if you, the borrower, default, you must repay the entire debt. Small businesses can obtain financing through the program for acquisition or improvement of assets (real estate, equipment, operating business concerns, etc.), refinancing existing debt, or working capital.

Terms of Loans

A common question is: what is the duration of the loans that I can get from the SBA?  How many years do they go out?  From the SBA Loan Book:

Repayment terms are determined by the actual use of the loan proceeds according to limitations imposed on each purpose:

  • Loans used to purchase, construct improvements on, or refinance real estate can be extended for up to a maximum of twenty-five years.
  • Loans used to purchase equipment can be extended for up to a maximum of fifteen years (though usually limited to ten) or to the expected useful life of the equipment, whichever is shorter.
  • Loans used to acquire an operating business concern can be extended for up to a maximum of ten years.
  • Loans used to fund business working capital can be extended for up to a maximum of ten years.

Currently participating lenders are guaranteed repayment by the SBA for 75 percent of the total loan amount up to $2 million (80 percent for loans under $250,000) for a maximum loan guaranty of $1.5 million.

As you can see, the range of loans goes from 10 to 25 years.  This is considerably longer than the term for loans issued by both bank lenders (outside the SBA program) and non-bank lenders, when it comes to small business borrowers.