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Published: Friday, 3/5/2010

Financing your business with the SBA's help


Perhaps no activity in starting up a new business, or in laying plans for growth of an existing business, will have as much impact on your prospects for success as ensuring adequate financing.

How do you go about financing your enterprise? The U.S. Small Business Administration recommends developing a proposal, including a business plan, and paying a visit to a commercial lender with whom you've done business in the past.

If that lender will make a loan to finance your proposal, then you don't need the SBA.

But if that lender declines or tells you that it can make the loan only if you can line up a guarantor, then the SBA's 7(a) loan program may be the answer.

The 7(a) is the most basic type of loan that the SBA offers. It is not a loan per se but a guaranty that the SBA provides participant lenders, making it easier for them to make small business loans that they otherwise might not fund.

The SBA's guaranty assures the lender that if the borrower does not repay the loan, the federal government will reimburse the lender, up to the percentage guaranteed by the SBA.

All businesses that are considered for financing under 7(a) must meet SBA size standards, be for-profit, not already have the internal resources (business or personal) to provide the financing, and be able to demonstrate sufficient cash flow to meet all of its monthly obligations, plus a monthly loan payment.

Also, you have to be of good character and be able to provide reasonable collateral or owner participation.

Most small businesses don't need a lot of money to start or to expand, but they need good repayment conditions, namely, longer terms and low interest rates. The 7(a) program provides both.

The maximum loan amount is $2 million, with a guaranty of 75 percent. The lower the amount you need, the higher the guaranty can go, up to 85 percent on loans of $150,000 or less. Loan maturities range up to 25 years.

The Small Business Administration offers several special-purpose 7(a) loans to meet the needs of small business, including:

t504 Loan Program, long-term fixed-rate financing to acquire major fixed assets, such as equipment, land, and buildings, for expansion or modernization.

tPatriot Express, for veterans and members of the military community wanting to establish or expand small businesses.

tARC Loan Program, for viable small businesses facing immediate financial hardship.

For more information, go to the SBA Web site: sba.gov/financing/index.html.r

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