SBA 7(a) program

Report
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
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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
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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
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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
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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
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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
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Ineligible Businesses
• Gambling or Speculation
• Real Estate Investment
• Adult Industry
• Non-Profit Organizations
• Religious Organizations
• Defaulted on a Federal Loan
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7(a) Use of Proceeds
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Working capital
Inventory
Lines of credit
Expansion / renovation
Leasehold improvements
Land or buildings
Furniture / fixtures / equipment
Refinance debt for compelling reasons
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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
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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
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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
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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%
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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
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