Many misconceptions exist regarding Small Business Administration (“SBA”) loan programs. The SBA does not make loans directly to small business borrowers. Loans are made and administered by commercial lenders, not the SBA. If a lender perceives a weakness in a particular application, the lender may require an SBA guaranty of the loan. The guaranty is only available to...
Many misconceptions exist regarding Small Business Administration (“SBA”) loan programs. The SBA does not make loans directly to small business borrowers. Loans are made and administered by commercial lenders, not the SBA. If a lender perceives a weakness in a particular application, the lender may require an SBA guaranty of the loan. The guaranty is only available to the lender and assures the lender that if the borrower does not repay, the SBA will reimburse the lender for its loss up to the amount of the guaranty. The borrower remains obligated for the full amount of the loan under all circumstances.
The SBA does have several different loan programs. The Section 7 (a) Loan Guaranty is the SBA’s primary business loan program designed to help qualified small businesses obtain financing when they might not be eligible for business loans through normal lending channels. It is also the SBA’s most flexible business loan program since financing under this program can be guaranteed for a variety of general business purposes.
The SBA’s 504 Loan Program provides long term, fixed rate financing to small businesses to acquire real estate, machinery, or equipment for expansion or modernization. Generally, a 504 project will include a loan secured from a private lender who holds a senior lien against an acquired property or a secured junior loan from a certified development company.
The SBA qualification requirements include repayment ability from the cash flow of the business, good character, management capability, collateral, the extent of the owner’s equity contribution and satisfaction of SBA eligibility requirements for the business itself. In addition, all owners of twenty percent (20%) or more of the company are required to personally guaranty SBA loans.
