U.S. Small Business Administration

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U.S. Small Business Administration
Getting Your Loan Approved
Kansas City District Office, 816-426-4900
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What is an SBA Loan?
An SBA Loan is a business loan, not a personal
loan or a grant. SBA Loans are guaranteed loans
through a Lender. The amount guaranteed depends
on the dollar amount of the loan and the specific
program the lender may use. Any lender,
including the lender you may currently do
business with can do an SBA loan. A lender
will review your business plan, financial
information, character and credit history. Your
lender will make a decision to work with you on a
conventional lending basis or to seek an SBA
guarantee to reduce their exposure. Some reasons
a lender will request an SBA guarantee is (1)
collateral available does not meet conventional
requirements, (2) term needed to repay the debt
is not available conventionally, (3) type of
business either a start-up or a higher risk
industry.
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How much can I borrow and how much of a guarantee
does the lender get?
The SBAs primary lending program is referred to
as the 7(a) loan guaranty program. A regular
7(a) loan has a maximum loan amount available of
2,000,000 which the Agency guarantees 75. If
the loan amount is 150,000 or less, the Agency
guarantees 85. Some lenders, because of the
volume of SBA loans made and their performance
history with SBA, have special designations for
streamlined processing of SBA loan applications.
The lender makes the credit decision and gets a
loan number from SBA. Once the lender has
obtained all the information they need, the
turnaround from SBA is within 36 hours. The SBA
Express Loan Program is a streamlined program
which is very popular with lenders. An Express
loan has a maximum loan amount of 350,000 which
the Agency guarantees 50. This program also
allows the lender to make lines of credit.
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Are there any fees associated with an SBA Loan?
SBA charges the lender a one-time guaranty fee
based on the guaranteed portion of the loan
amount. SBA allows the lender to pass this fee
on to the borrower and it may be financed as part
of the loan package. This fee is based on the
application amount as follows
For example, the guarantee fee on a loan of
150,000 for a regular 7(a) loan is (150,000 x
85 guaranty x 2 ) 2,550.00. The guarantee
fee on a 50 SBA Express loan is (150,000 x 50
guaranty x 2) 1,500.00. http//www.sba.gov/ser
vices/financialassistance/basics/sbarole/SERV_7A_F
EES.html for any fee changes
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How long can I have to repay the SBA loan?
Most SBA loans have maturities from 5 to 7 years.
The maximum maturity available is based on use
of proceeds and as negotiated with your lender
based on SBA policy Working capital and
inventory purchases 7 years Payment of accounts
payable 7 years Purchase of existing
business 7 years Equipment
purchases 7 years Real estate purchase and
construction 25 years
Most SBA loans have maturities from 5 to 7 years.
The maximum maturity available is based on use
of proceeds and as negotiated with your lender
based on SBA policy Purchase of equipment may be
eligible for a longer term if useful life in
excess of 7 years is demonstrated. Loans
involving multiple use of proceeds (for example,
purchase of equipment and real estate) will be
blended based on maximums, rather than obtaining
two different loans. Debt refinancing maturity
is based on original use of proceeds as outlined
above.
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More on Maturities

• A maturity of 10 years may be available for
  working capital, purchase of inventory, existing
  business or equipment if cash flow demonstrates
  need for longer maturity.
• Purchase of equipment may be eligible for a
  longer term if useful life in excess of 7 years
  is demonstrated.
• Loans involving multiple use of proceeds (for
  example, purchase of equipment and real estate)
  may have a maturity up to the maximum for the
  asset class comprising the largest percentage of
  the use of proceeds.
• Debt refinancing maturity is based on original
  use of proceeds as outlined above.

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What if I need to purchase equipment and I also
need a line of credit?
In this instance, you would need two SBA loans.
A regular SBA loan is a term loan with a specific
maturity, regular monthly payments and does not
revolve. SBA provides line of credit financing
under its Capline program which utilizes
asset-based financing (for further information
refer to www.sba.gov) and has a maximum loan
amount of 2,000,000. These loans can have
maturities of one year or up to five years and
may revolve. Under SBA Express (with a maximum
loan amount of 350,000), a line of credit may
have up to a 7-year maturity (combination of a
revolving line and a term-out to provide orderly
payout). You can have loans from the regular
7(a) loan program, SBA Express program and the
504 loan program (discussed on a later slide) as
long as combined totals do not exceed Agency
limits.
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Do I need any collateral?
Generally speaking, SBA expects the lender to
secure a loan to the fullest extent possible with
assets that are available - both business and
personal assets. SBA allows the lender under the
SBA Express program to do an unsecured loan up to
25,000 thereafter, the lender uses its
collateral policy up to 150,000. Above
150,000, lender must secure a loan to the
fullest extent possible with assets that are
available. Full collateral is not a primary
condition for any SBA loan however, other
aspects of the project become very important
management capability, historic earnings or
projections, equity injection, and personal
character and credit history.
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Are the SBA loans low interest rates?
Since the lender actually loans its own money
under an SBA guarantee, interest rates are set by
the lender and may, in some cases depending on
the risk, be higher than their conventional
rate. Generally, SBA allows a lender to charge
up to 2.25 above prime for a loan with less than
a 7-year maturity and 2.75 for a maturity of 7
years and over. For loans 50,000 and less, SBA
allows lenders to charge a slightly higher
rate. With the SBA Express program, the
allowable interest rate spread is higher. The
interest rate spread is negotiable between you
and the lender and is usually driven by lending
competition in your particular geographic area.
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Can I get a fixed interest rate on my loan?
SBA allows lenders to set up loans on a variable
rate (adjusts when the prime rate changes) or a
fixed rate. This is also a negotiable item
between you and your lender however, most
lenders do general business loans on a variable
rate basis. SBA allows lenders to put floors and
ceilings so the interest rate doesnt go below a
certain amount or go above a certain amount
however, this is rarely done on a SBA
loan. Lenders may set the fluctuation period on
a variable rate note at monthly, quarterly,
semi-annually, annually or a combination of a
fixed rate for a period of time and then a
fluctuating rate. In preparing your projections
for revenues and expenses, you may want to
consider how future rate changes may affect your
operations.
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How Much Money do I have to put in the project?

• SBA will not allow a loan to finance 100 of a
  project.
• Equity is determined on a case-by-case basis
  depending on type of business, start-up nature,
  strength of management and credit factors.
• Equity injection means actual cash into the
  business for working capital, purchase of
  inventory or equipment, or start-up expenses.
• Pledge of personal assets can offset a lower
  equity injection, but is not acceptable in lieu
  of cash injection.

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Is there a special loan if I want to purchase
real estate and construct a building?
The SBA 504 Loan Program provides three-tiered
financing for purchase of real estate or purchase
of real estate and construction or, in some
cases, purchase of long-lived equipment) for
eligible business enterprises (see slide later in
presentation). A lender participates as the
first tier financing for 50 of the project on
real estate for at least 10 years and equipment
for at least 7 years. The SBA, through a
Certified Development Company (see list of CDCs
elsewhere on our website), guarantees a debenture
sold on the secondary market providing fixed
interest rate financing for 20 years on real
estate and 10 years on equipment on a portion of
the project (generally a maximum of 40). The
third tier is the equity contribution at a
minimum of 10 of the project.
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What needs to be in a Business Plan?
A business plan precisely defines your business,
identifies your goals, and serves as your firm's
resume. A business plan sets out your plan for
the business which is valuable as it guides you
through the various phases of your business,
outlines the potential for success and any
obstacles, and gives information to attract
investors or lenders. As a management tool, the
business plan helps you track, monitor, and
evaluate your progress. The business plan is a
living document that you will modify as you gain
knowledge and experience. By using your business
plan to establish timelines and milestones, you
can gage your progress and compare your
projections to actual accomplishments. The SBA
provides assistance in business planning through
its partners and through online sample formats
and tutorials (discussed in more detail in The
SBA Advantage presentation).
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If I have a bankruptcy does that mean I cant
get an SBA loan?
A bankruptcy in your past cannot be a sole reason
for a loan denial. However, SBA and lenders
consider the bankruptcy as a character and credit
concern. The details of the bankruptcy should be
discussed with your lender. A loan cannot be
made if you are still in bankruptcy, the
bankruptcy must be formally discharged. The
lender will want to determine that you can handle
a business obligation in the agreed manner and
will look at the details of the bankruptcy, look
to see that you have re- established credit in a
satisfactory manner since the bankruptcy and may
look at credit history prior to the bankruptcy in
some circumstances. There are some lenders who
will not consider a business loan to an
individual with a former bankruptcy as a
character issue. A low credit score as a result
of a bankruptcy may preclude your obtaining a
loan through a streamlined method such as SBA
Express.
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Does it matter if I have ever been arrested?
An individual who is currently incarcerated, on
parole, on probation or any type of diversion
program is not eligible for an SBA loan. A
character issue which needs to be disclosed and
discussed with your lender is any incident other
than a minor traffic violation. A violation,
such as a DUI/DWI, which was expunged or dropped
must be disclosed as an arrest is a permanent
record. A felony charge will preclude you from
obtaining a loan through the streamlined process.
Multiple misdemeanor recent charges (within the
last 10 years) will also preclude you from
obtaining a loan through the streamlined process.
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More on character issues

• For documentation of a character incident, you
  will be asked to provide to your lender an
  affidavit of the incident(s), disposition of the
  charges and statement that the narrative
  discloses all incidents. This statement must be
  signed, dated and notarized. You may be asked to
  provide fingerprint cards completed by a law
  enforcement official to provide proper
  fingerprints.
• All affidavits, accompanied by fingerprint cards
  (as necessary), are referred to SBAs Office of
  Inspector General for clearance. The Inspector
  Generals office performs a name check and
  fingerprint check with a referral to the FBI.

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Can I get an SBA Loan for a Mini-Storage
Facility?
Generally, a mini-storage facility is not an
eligible business. It is considered a passive
investment to obtain rental income. Passive
businesses owned by developers and landlords that
do not actively use or occupy the assets acquired
or improved with the loan proceeds are not
eligible Other related businesses that are
generally ineligible include apartment
buildings, shopping centers, mobile home parks
(RV parks may be eligible), antique or outlet
malls. Other ineligible businesses include
casinos businesses which promote, teach or
indoctrinate a specific religion businesses
engaged in providing live entertainment or
products of a prurient sexual nature businesses
owned in a foreign country and businesses or
individuals who have previously defaulted on any
federal government debt causing the federal
agency to sustain a loss (includes compromised
debt).
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What special programs are available for women and
minorities?
SBA currently has no special financing program
for certain groups (with the exception of
veterans to be discussed shortly). SBA strives
to address the needs of those underserved in the
marketplace, including women, veterans, native
Americans, young entrepreneurs, rural and
low-to-moderate income residents. This includes
encouraging lenders to utilize the SBA loan
guaranty program to especially provide equal
credit access to all individuals. SBA may
provide other assistance in the area of
contracting. See additional presentation on
Business Development for more information.
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Is there a special SBA program for veterans?
PATRIOT EXPRESS PROGRAM A pilot program has been
established recently called the Patriot Express
Program. To be eligible for this loan program, a
business must be owned 51 or more by a veteran,
individuals in transition from the service,
reservists or national guard members, disabled
veterans or spouses of the preceding, and widowed
spouses of service members or veterans who died
during service or of a service-connected
disability. The maximum amount of the Patriot
Express loan is 500,000 (including any
outstanding SBA Express, Community Express,
Patriot Express and Export Express). SBAs
maximum guaranty is 85 for loans of 150,000 or
less and 75 for loans over 150,000 up to
500,000. For loans above 350,000, lenders are
required to take all available collateral. See
additional presentation on Business Development
for more information regarding contracting
assistance.
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For More Information

• Loan programs www.sba.gov
• Counseling, training and business plans The SBA
  Advantage presentation or www.sba.gov
• List of lenders with special SBA designations in
  Kansas City and Springfield, MO
  http//www.sba.gov/localresources/district/mo/kans
  as/financing/index.html
• Information on 504 loan program see www.sba.gov
• Kansas City SBA District Office 816-426-4900

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• Please take a few minutes to complete the
  training evaluation form.
• Thank you.

SBA Evaluation