7(a) Loan Guaranty Program SBA is not a direct lender • SBA 7(a) program offers guaranty to lenders – Guaranty is a partial refund for a failed loan – Lender obtains guaranty from SBA Visit us at www.sba.gov 1 7(a) Loan Guaranty Program • Lenders originate and service loans • The SBA loan guaranty program is not a guaranty of a low interest rate Visit us at www.sba.gov 2 7(a) Loan Guaranty Program Not everyone needs an SBA Guaranty If risk is too high - lender comes to SBA • Start-up businesses • Insufficient collateral • Non-standard repayment terms • Industry Risk Visit us at www.sba.gov 3 7(a) Loan Guaranty Program • SBA lending relies primarily on a demonstration of adequate cashflow. • There must be a reasonable expectation that the loan will be repaid. Visit us at www.sba.gov 4 Size Requirements • Must be independently owned and operated • Must be a small business as defined by SBA • Federal standard – NAICS • SBA.GOV/SIZE • Maximum size examples • • • • Wholesaling – less than 100 Employees Retail/Service – average sales $4.5M to $32.5M Manufacturing – less than 500 Employees Construction – average sales $13M to $32M Visit us at www.sba.gov 5 Ineligible Businesses • Gambling or Speculation • Real Estate Investment • Adult Industry • Non-Profit Organizations • Religious Organizations • Defaulted on a Federal Loan Visit us at www.sba.gov 6 7(a) Use of Proceeds • • • • • • • • Working capital Inventory Lines of credit Expansion / renovation Leasehold improvements Land or buildings Furniture / fixtures / equipment Refinance debt for compelling reasons Visit us at www.sba.gov 7 Loan Maturity Dates • Working Capital Loans - Up to 7 Years • Machinery and Equipment Up to 10 Years • Construction of Plant Facilities - Up to 25 Years Visit us at www.sba.gov 8 7(a) Loan Amounts • Maximum amount $2 million • Guaranteed portion – Less than $150,000 = 85% – Greater than $150,000 = 75% – 90% to a maximun of $1,500,000 thru 12/31/2009 Visit us at www.sba.gov 9 7(a) Interest Rates • Negotiated between borrower and lender • Maximum interest rate: – Less than 7 Year Term = Prime + 2.25% – Greater than 7 Year Term = Prime + 2.75% – Higher rates permitted for loans of less than $50,000 and SBA Express Loans Visit us at www.sba.gov 10 7(a) Cost of Guaranty SBA Guaranty Fees • Can be included in loan • Calculated on guaranteed portion of loan – Maturity less than or equal to 1 year • 0.25% – Maturity greater than 1 year • Less than $150,000 = 2% • $150,000 - $700,000 = 3% • Greater than $700,000 = 3.5% – Guaranty greater than $1M • Additional 0.25% Visit us at www.sba.gov 11 What is new? • Reduce Fees • Increase guaranty • Expand Secondary Market – Up to $15 Billion to purchase loan securities on the secondary market. • Refinancing using 504 loans • Business stabilization loans Visit us at www.sba.gov 12