May 2013

The SBA Is Here To Help

By Karl W. Wernick 
U.S. Small Business Administration
Lender Relations Specialist
 
Really!  SBA is here to help!  In fact, last year SBA helped 1,377 Utah businesses obtain financing in excess of $361 million to open their doors, enter new markets through exporting, increase production capacity and expand.  Outstanding SBA loans in Utah total in excess of $1.6 billion.  What these businesses know is that SBA financing benefits them by:
 
  • Offering a longer term, which reduces their annual debt payments
  • Improving cash flow
  • Eliminating balloon payments
  • Providing financing that may otherwise not be available to them.
 
What exactly is SBA and what does it do?   SBA – officially known as the U.S. Small Business Administration – is a Federal Government Agency, established in 1953, to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns."   To meet that objective, SBA provides free counseling (through its network of SCORE chapters, Small Business Development Centers, Women’s Business Centers and various outreach programs), helps small disadvantaged businesses and those located in distressed urban and rural communities to obtain government contracts, and provides advocacy services.   However, the Agency is best known for its guaranty loan program wherein the bank or credit union makes the business a loan and SBA guarantees to the lender that it will cover 50% to 85% of any loss that occurs.  (SBA does not lend money directly to the borrower.)  This guaranty enables lenders to offer loans that would otherwise not be available.
 
SBA has a number of different programs to provide financing up to $5 million for as long as 25 years, for just about any legal business purpose.  Loans may be used to construct or buy a new facility, purchase equipment, provide working capital, gear up to export, etc.  While SBA has specific eligibility restrictions, most small businesses are eligible to obtain financing.  Let’s look at a snapshot of the most popular loan programs.
 
Standard 7(a) Guaranty Loan – This it the “catch-all” program and is typically used for larger, more complicated loans (up to $5 million) and when the business needs financing for multiple uses of proceeds; e.g., building expansion, working capital, and equipment purchase -- all wrapped into one loan.
 
Small Loan Advantage – With a maximum loan amount of $350,000, this program is ideal for the less complicated loans and allows the lender to streamline the process by using credit scoring.   Some of the loan requirements are less restrictive than in other programs.
 
SBA Express – Businesses that need a line of credit for a year or two should ask about this program which can be used for loans up to $350,000 and a maximum term of 7 years.  Lenders use their own underwriting criteria and forms making this an expedited, streamlined process.
 
Patriot Express and Export Express – Lenders use a streamlined process and their own closing documents to assist exporters and businesses owned by military service-related individuals with loans up to $500,000. 
 
Export Working Capital Program (EWCP)  -- Exporters needing short-term working capital financing up to $5 million (either asset or transaction-based) to increase export sales benefit from this program.
 
International Trade Loan (ITL)  --  With a maximum term of 25 years, this program helps businesses to increase exports.   Loan proceeds up to $5 million may be used to build or acquire additional production facilities and/or equipment and to provide permanent working capital.
 
504 Loans – These are long-term fixed-asset loans requiring as little as a 10% down payment for established businesses acquiring non-specialized facilities.  The financing package consists of two loans.   1) A “Third-Party Lender” (the borrower’s lending institution) typically provides long-term financing for 50% of the project costs.  As the loan is secured by a first lien position on the property, the lender is able to offer favorable rates and terms.    2) A Certified Development Company (CDC) makes a 20 year, fixed, low interest rate loan for up to 40% of the project costs.   The 504 program benefits borrowers by providing protection against rising interest rates and requiring a low down payment.
 
CapLines – In addition to the credit lines mentioned above, SBA offers four others – Working Capital, Seasonal, Contract and Builders CapLines.  Most have a maximum term of 10 years and loan proceeds are used as implied by their names.
 
So, why should you get an SBA loan?  Lower payments, better cash flow, and no balloon payments are just a few of the reasons.
 
Interested?  Meet with your local lender to determine which SBA loan best meets your needs.  A list of active lenders may be found in the online Small Business Resource Guide located at http://www.sba.gov/sites/default/files/files/resourceguide_3154.pdf.  (See page 28.)