Show Me the Money: SBA LOANS
They provide financing when a business is unable to obtain conventional financing through their bank or other sources.
WVDI is certified and regulated by the U.S. Small Business Administration (SBA) to originate SBA loan products and to assist lending institutions with SBA programs. Specifically, WVDI focuses on SBA’s two flagship loan programs, the 504 Loan and the 7(a) Loan.
SBA 504 LOAN PROGRAM
The SBA 504 Loan Program is designed to assist small businesses with their expansion plans by providing low 25, 20 and 10-year fixed interest rate loans for the purchase of real estate, long-term equipment and eligible debt refinance. SBA 504 loans are the culmination of a cooperative effort between the financial institution, WVDI and the borrower.
A SBA 504 loan is a benefit to all the participants in the commercial loan transaction because it spreads the risk among all the parties. Businesses are able to obtain long-term financing with a down payment lower than conventional standards. This allows them to preserve working capital for more important things like growing their business. In addition, the small business gets the advantage of a loan with a long-term fixed rate.
SBA 7(a) LOAN PROGRAM
Under the SBA 7(a) Loan Program the borrower’s bank agrees to make a loan with a portion of the loan guaranteed by the SBA. Usually, the guaranteed portion is 75% (85% for loans less than $150K). This program allows a financial institution to make a commercial loan to a business that may otherwise be just outside policy, but with limited exposure in case the business is unsuccessful.
These loans come in all shapes and sizes, and can fall under specific categories such as SBAExpress (typically for revolving purposes), CAPLines, and even International Trade. SBA 7(a) loans can be used to finance real estate purchases, inventory, equipment, revolving lines of credit, blue sky/ goodwill, debt refinance and many other business needs.
SBA loans are generally used in situations where a business owner does not have enough cash reserves or collateral to secure conventional financing. In some cases, a business can qualify for SBA financing with as low as a ten percent down payment; or no down payment at all if they have equity in the business or project being financed.
In other cases, SBA loans are used to secure financing for businesses that are high risk. Often these businesses have no other means of financing, and without the SBA, would not have a chance of getting off the ground.
For any SBA loan program, the eligibility requirements are designed to be as broad as possible to accommodate the most diverse variety of small business financing needs whether it is a start-up or existing business.
When WVDI first reviews a new project, there are three main eligibility requirements a business must meet:
When purchasing real estate it must be owner-occupied.
For existing properties, business must occupy 51% of available square footage
For new construction, business must occupy 60% of available square footage
Expectation of future job growth or ability to achieve other SBA goals.
Other eligibility factors for all SBA loans include: size, type of business, use of proceeds, character considerations, availability of funds from other sources (business or personal) and repayment ability.
Information Provided By Troy Roberts, Executive Director, Wakarusa Valley Development, Inc.