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Frequently Asked Questions about
the SBA 7(a) Loan Program
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What types of businesses qualify for a SBA 7(a) loan?
Security Bank through the U.S. Small Business Administration (SBA) provides financing
for a wide range of businesses. To be eligible, the business generally must be operated
for profit and fall within the size standards set by the SBA. Loans cannot be made
to businesses engaged in speculation or investment or to non-profits.
Maximum Size Standards
- Manufacturing: from 500 to 1,500 employees
- Wholesaling: 100 employees
- Services: from 4 million to 29 million in annual receipts
- Retailing: from 6 million to 24.5 million in annual receipts
- General Construction: from 6 million to 28.5 million
- Special trade Construction: average annual receipts not to exceed 12 million
- Agriculture: from 3.5 million to 10.5 million
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What expenses will a SBA 7(a) loan cover?
Loan proceeds can be used by start-up companies or existing businesses to purchase
land or buildings, construct commercial buildings, expand or renovate facilities,
and to purchase machinery, equipment, fixtures, and leasehold improvements. In addition,
7(a) loan proceeds may be used to finance inventory, supplies, raw materials, working
capital, and in some cases to refinance existing debt.
Are there any limitations?
- There are specific rules regarding the refinance of existing debt. Please contact
us to determine if your debt is eligible for refinance.
- SBA funds can not be used to purchase assets from an officer, director, key employee
or owner of more than 20% of the business. An exception to this would be the purchase
of the entire portion of another owner's interest in the business.
- Delinquent taxes can not be repaid from loan proceeds.
- If the SBA loan involves the acquisition, renovation, or reconstruction of an existing
building, the borrower must occupy 51% of the property. Loans involving new construction
require the borrower to occupy 67% of the property.
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What term and interest rate can I expect?
The length of time for repayment depends on the use of the proceeds and on the ability
of the business to repay the debt:
- Working Capital: Up to 7 years
- Machinery, Equipment, Furniture & Fixtures: 5 to 10 years
- Purchase or major renovation of Real Estate: Up to 25 years
Security Bank charges a variable rate of interest, adjusted monthly, floating at a spread
above the Wall Street Journal Prime Rate.
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What collateral can I be expected to pledge?
Borrowers must pledge sufficient assets, to the extent that they are reasonably
available, to adequately secure the loan. Personal guaranties are required
from all principal owners of the business (with ownership of 20% or more).
liens on personal assets, including residence, of the principals may also be required.
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What does the SBA look for in a loan applicant?
- Good Character
- Management expertise and commitment necessary for success.
- Sufficient funds, including the SBA-guaranteed loan, to operate the business on
a sound financial basis (for new businesses, this includes the resources to withstand
start-up expenses and the initial operating phase)
- Feasible business plan
- Adequate equity investment in the business
- Sufficient collateral
- Ability to repay the loan on time from the historical or projected operating cash
flow
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When it comes time for the first meeting with a lender, what should a business owner
bring?
When meeting with a lender a borrower should have an idea of how much financing
they need, how the money will be spent, how much equity they can put into the project,
and what kind of collateral they can provide for the loan. They should be prepared
to tell the lender about their business, how this request will benefit their company,
and how they will repay the debt.
The SBA will require the same type of financial information required for a conventional
loan. A checklist is available.
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What government paperwork or forms will eventually be needed?
Security Bank will prepare the SBA loan application and any other forms to be submitted
to the SBA. There is no packaging fee or charge for this service.
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Is a business more apt to qualify for a SBA loan rather than a conventional loan?
What is the difference?
The purpose of a SBA loan is to provide financing for small businesses that are
unable to obtain conventional financing appropriate for the business. The SBA is
able to provide longer terms, which are often not available on a conventional loan.
A borrower may need these terms in order to have sufficient cash flow to pay for
the proposed loan payments. Another reason why a borrower may choose SBA financing
is to preserve working capital on the acquisition of real estate or equipment. Under
SBA the borrower can inject as little as 70% into the project costs.
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How long does it take to get a SBA loan?
Once a borrower has submitted a complete loan package to Security Bank, an approval
can usually be obtained from Security Bank within about two weeks. Additional
time is generally required to receive SBA approval.
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What is the maximum loan amount available? What terms are available?
Borrowers can typically borrow up to $2,000,000 million under the SBA 7(a) loan
program with the government providing a 75% loan guaranty, up to $1,500,000. Loans
under $150,000 carry an 85% guaranty.
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What fees are involved?
Participants are required to pay a one-time guaranty fee (which may be financed),
based on the amount of the guaranty portion of the loan. This fee is on the following
sliding scale:
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Loan Amount |
Fee (of Guarantee Portion) |
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$0 - 150,000 |
2.0% |
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$150,001 - 700,000 |
3.0% |
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$700,000+ |
3.5% |
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