SBA Supported Programs

InSource Capital Services is a specialist in SBA LOAN programs.

SBA Programs supported by InSource Capital Services include:

• The 7(a) Loan Guaranty Program
• SBALowDoc Loan Program
• Enhanced SBAExpress Loan Program
• Certified Development Company (504) Loan Program

The 7(a) Loan Guaranty Program is one of SBA's primary lending programs. It provides loans to small businesses unable to secure financing on reasonable terms through normal lending channels. The program operates through private-sector lenders that provide loans which are, in turn, guaranteed by the SBA -- the Agency has no funds for direct lending or grants. Most lenders are familiar with SBA loan programs so interested applicants should contact their local lender for further information and assistance in the SBA loan application process. Information on SBA loan programs, as well as the management counseling and training services offered by the Agency, is also available from the local SBA office. A maximum loan amount of $2 million has been established for 7(a) loans. However, the maximum dollar amount the SBA can guaranty is generally $1 million. Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner's equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.

SBALowDoc Loan Program

• Further streamlines the making of small business loans.
• The maximum loan-$150,000.
• Calls for a response from the SBA within 36 hours of receiving a complete application.
• Guaranty percent follows 7(a) policy

Once 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 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.

To 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.

Maturity is usually 5 to 10 years. For fixed-asset loans it can be up to 25 years.

Enhanced SBAExpress Loan Program

• Makes it faster and easier for lenders to provide SBA guaranteed small business loans of $250,000 or less.
• Allows most lenders to use SBA's more efficient and streamlined loan review processes.
• Includes fewer SBA forms and procedures.
• Offers special lender incentives to provide very small SBA loans, especially revolving lines of credit.
• Loans processed centrally with usually instantaneous SBA response.

The SBA's general collateral policy requires guaranteed loans to be fully secured; with SBAExpress, lenders are not required to take collateral for loans up to $25,000 and may use their existing collateral policy for loans over $25,000 up to $150,000.

Loan maturity generally depends on the borrower's ability to repay and the use of the loan proceeds. But note the new SBAExpress allows revolving loans up to 7 years with maturity extensions permitted at the outset.

Lenders and borrowers can negotiate the interest rate. Rates are tied to the prime rate (as published in the Wall Street Journal) and may be fixed or variable, but they may not exceed SBA maximums:

Lenders may charge up to 6.5 percent over prime rate for loans of $50,000 or less and up to 4.5 percent over the prime rate for loans over $50,000.

The maximum loan amount for SBAExpress is $250,000.

Certified Development Company (504) Loan Program

The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide. Each CDC covers a specific geographic area. (Find the CDC in your area.)

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.

Maximum Debenture
The maximum SBA debenture is $1,000,000 for meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $35,000 provided by the SBA.

The maximum SBA debenture is $1.3 million for meeting a public policy goal. The public policy goals are as follows:

• Business district revitalization
• Expansion of exports
• Expansion of minority business development
• Rural development
• Enhanced economic competition
• Restructuring because of federally mandated standards or policies
• Changes necessitated by federal budget cutbacks
• Expansion of small business concerns owned and controlled by veterans
• Expansion of small business concerns owned and controlled by women

WHAT FUNDS MAY BE USED FOR:

Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment.
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.

TERMS, INTEREST RATES AND FEES:

Interest rates on 504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately three (3) percent of the debenture and may be financed with the loan.

COLLATERAL:

Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

ELIGIBLE BUSINESSES:

To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $7 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.