[SBA loan programs]

The U.S. Small Business Administration (SBA) is a federally chartered organization that provides financial and other forms of assistance to more than one million small businesses. While the SBA makes some loans directly, most of its programs consist of a loan guaranty. With a loan guaranty, a certified or preferred lender of the SBA is more willing to make a loan. The SBA backs up the loan in the event of a default by the borrower. In order to participate in a SBA loan program, your business has to qualify by sales size and industry type. Generally, the SBA does not make loans to businesses that engage in lending, investing, gambling, or illegal activities; in short, in industries where speculative practices occur on a regular basis. In evaluating a loan request, the SBA and its network of lenders adhere to the four Cs of credit, a set of basic credit standards. The SBA generally requires business owners that hold 20% or more of the equity in the business to co-guarantee the loan. It also requires that most loans are secured by business collateral. Some of the major SBA loan programs include:

  • 7(a) loan guaranty program.

    The maximum loan amount of a 7(a) loan program is $2 million. However, the SBA only guarantees a maximum of 75% on loan amounts of up to $2 million. For amounts of $150,000 or less, it guarantees a maximum of 85% of the loan amount. For the 7(a) and most of its other loan programs, the SBA makes both fixed- and variable-rate loans. Variable rate loans are priced by adding the appropriate spread to the prime rate. Lenders apply the four Cs of credit to determine how large of a spread to add in calculating the final loan rate. Obviously, a strong credit history increases a borrower's chances of loan approval. However, your chances of receiving an SBA-backed loan also depend on the source of loan repayment, quality of collateral, and amount of capital you invest in the business.

  • SBAExpress loan program.

    The maximum loan amount of the SBAExpress loan program is $350,000. The program also allows borrowers to request an unsecured credit line of $25,000. The SBA has a streamlined approval process for guarantees up to 50% of the loan amount.

  • CAPLines.

    The SBA's CAPLines program is actually five working capital loan programs that provide credit lines to small businesses. The maximum guaranty is for $2 million. Since the SBA guarantees 75% of the loan amount, the maximum implied loan amount is $1.5 million. Credit lines are offered for terms of up to five years.
Generally, unless otherwise specified in an SBA loan program, SBA loan periods are for up to seven years for working-capital loans and 25 years for real estate-secured loans. The length of a loan-repayment period is based on how the loan proceeds are used, the useful life of the assets bought with the proceeds, and the borrower's ability to repay.