SBA Loans

The Small Business Administration The Small Business Administration (SBA) is multifaceted in its functions. it offers active support in ensuring small businesses a "fair" proportion of governmental contracts, either lending or acting as the guarantee for credit extended to the small firm, providing management consultants to the owners of the small company, and performing research of interest to the small business community. The following paragraphs describe the agency's role in actually providing capital or facilitating the acquisition of these funds.

Eligibility requirements for SBA loans In working with small firms, the government had to develop an operational definition of a small firm. To be considered a small firm, the SBA requires that certain size criteria be met. The guidelines do not have to be strictly interpreted instead they should be thought of as representing approximations in identifying eligible loan applicants. Exceptions to these general benchmarks for defining a small entity are also indicated, with organizations operating in the following types of operations not having access to SBA loans:

1. Loans to nonprofit businesses
2. Lending for investment
3. Loans for withdrawals by principals
4.Publication of magazines and newspapers loans
5.Loans that encourage monopolies
6.TV or radio broadcasting loans
7. Financing for unwarranted changes in ownership
8.Loans to businesses selling mainly alcoholic beverages
9.Businesses involved in gambling

Application procedures The approach used in processing a loan application is somewhat dependent on the firm's status in terms of being an established business versus a new business. Regardless of the age of the firm, the loan request should originally be presented to a bank. Only subsequent to the bank's review of the loan and denial of the credit may the firm approach the SBA. In other words, the SBA is a "source of last resort." In fact, if the community population exceeds 200,000, two banks must have rejected the loan. Having completed the process of a loan request, the owner may then inquire as to the bank's interest in working with the SBA in terms of a guarantee or participation in the loan. Typically, if the bank has had satisfactory experience with SBA cooperative efforts and cannot justify accepting the loan singularly, it will initiate the idea of SBA involvement, avoiding an outright rejection of the loan request.

Types of loans available through the SBA When the needed financing is coming entirely from the SBA, the agency is authorized to lend up to $150,000 to an individual business. However, in view of the agency's policy of avoiding direct loans, the typical limitation in size when granted has been between $5,000 and $25,000. If the loan involves the bank's participation, this ceiling is raised to $150,000, with a maximum interest rate on the bank's portion being established by the bank at a "legal and reasonable rate."

Instead of making direct loans, the SBA prefers to serve in a support function as a guarantee for bank credit. When approved by the SBA field representative, a bank may obtain a guarantee of the loan repayment from the SBA not to exceed the lesser of 90 percent of the loan or $500,000. The interest. rate is generally set by the bank. As to maturity, the purpose of the loan dictates the repayment schedule. The limit as imposed by the SBA is ten years, with a shorter period of six years for working capital requirements and 20 years for real estate.