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Small Business
Administration (SBA) |
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WHAT IS A SMALL
BUSINESS: |
Determined
by industry and by loan program. Generally: |
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Retailers - annual sales less than $3,500,000 |
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Service
Companies - annual sales less than $3,500,000 |
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Wholesalers - less than 100 employees |
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Manufacturers - less than 500 employees |
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Construction - annual sales less than $9,500,000 |
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PLAYERS: |
1) |
U.S. Small
Business Administration |
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“Public-private
partnership” |
2) |
Private sector
lender (bank) |
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3) |
Loan packager -
prepares application package (7[a]) |
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4) |
CDC - Certified
Development Company (504 only) |
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LOAN TYPES: |
SBA offers several types of loans. The following are more common loans. Contact the SBA at 1 (800)827-5722 or
website: www.sba.gov |
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1) |
7
(a) Loan Program -
most common, can be used for: |
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Acquisition of land and
building |
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Acquisition of machinery
and equipment |
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Acquisition of working assets (inventory, build-up of accounts
receivables) |
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Debt
refinance (if credit is not available elsewhere) |
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Includes the following
loan types: |
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Term loans, Line of Credit, Pollution Control loans, Energy
loans |
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a) |
Direct loans - very limited: Vietnam veteran, disabled veteran, low income, handicapped -
maximum $150,000 |
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b) |
Guaranteed loan program - most common - loan made by bank “co-signed” by the SBA |
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2) |
504 Loan Program |
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Excellent for equipment
& building expansions |
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Fixed interest rate - 20 years |
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Actually involves two loans - a 1st mortgage to the bank and a
2nd mortgage through the SBA |
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HOW TO APPLY: |
1) |
Prepare your loan request |
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2) |
Make application to your
bank |
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3) |
*Bank analyzes the request and either decides to proceed or
decline the loan |
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4) |
*SBA application package
is prepared |
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5) |
*Bank submits SBA
application package to SBA |
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6) |
SBA analyzes the application and either issues “authorization”
or declines the loan |
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7) |
*Bank closes the loan |
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* For 504 (CDC loans), the CDC also analyzes. The CDC prepares and submits the
application package and has a separate loan closing. |
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WHO’S
NOT ELIGIBLE: |
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Passive investment
companies |
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Not-for-profits |
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Lending institutions |
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Gambling operations |
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Academic schools |
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Real
estate investment companies/developers/landlords |
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7(a) No-No’s |
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Excess assets: If owners
of the company have the resources to finance the project, the SBA expects
them to do so. |
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Highly leveraged
companies: |
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1) |
Debt to net worth for start up companies should generally not be
more than 2:1. |
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2) |
Debt to net worth for existing companies should generally not be
more than 5:1. |
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(debt to net worth = Total Liabilities) |
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Net Worth |
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Lines of Credit: Company
must have at least 12 months operating results for seasonal need or for
specific contract. |
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Source: Small Business Administration, 2003 |
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