The SBA Lending Programs

Today I offer more information on The SBA Lending Programs
The $2 Trillion CARES Act is fine and wonderful, but in most instances, it only scratches the surface of what Entrepreneurs actually need. What if you aren’t looking for something that will specifically handle payroll and operating expenses over the next couple of months? What if you don’t have a major economic injury due to the epidemic?
The SBA has three major loan types that Entrepreneurs should know about. These are
– SBA 7(a) Loans
– SBA CDC/504 Loans
– SBA Microloans
First, you should know that the SBA doesn’t actually lend money to anyone. It works through banks and other lending institutions to provide low interest loans at competitive terms and rates to small businesses. What the SBA actually does is back or guarantee the loans provided through its programs, anywhere from 50% – 85%. This substantially reduces the risk that a lender would have, in a small business financing scenario.
What that also means is that before you approach the SBA, you need to get a lender interested in your loan package. If you cannot get a lender interested in your loan, then your SBA Loan is effectively dead.
Let me give you a little insight into the lending process.
Bankers are not interested in working for a living. Bankers want to lend money, get their loans paid back, and not have any problems whatsoever. The second that they have to call about a problem, you become their least favorite client. The second that they begin to worry about your ability to repay that loan, you immediately will go on their S*** List.
If you cannot repay your loan, for whatever reason, you become a major problem for that banker. Why? Because if they have enough loans go bad, they will lose their job. The higher ups at that bank will need a scapegoat, someone to blame. Why? So that the higher ups will not lose their precious jobs, healthcare, and benefits.
This is the way of the world, and how things are. The SBA doesn’t change any of that. They only guarantee a portion of that loan, not all of it. The Bank, and The Banker, are still taking a risk. No one is in the business of lending money to lose their jobs.
If you cannot get a bank interested in your loan, then you probably shouldn’t be borrowing money in the first place.
That’s a hard and ugly fact, but one that you should remember. Bankers cannot make any money if they do not lend. They want to get that money out of their shop, but they don’t want to have any problems or worries in the process.
If you cannot convince them that this is a good idea, then it might just be an awful one.
Here’s my point. Don’t just go to one banker. Each lending institution and individual lender has a history. Maybe they have had nothing but problems in your industry. Maybe they only like different types of deals. Maybe they don’t want to do anything that isn’t backed by a significant loan to value ratio on a specific type of real estate.
Maybe you just aren’t their preferred cup of tea.
After you have talked to a few, if they all say no, then you should reevaluate. Don’t be foolish enough to ask them why they said no. By definition, most of the time, they cannot tell you the real reason. They are going to constantly be worried about discrimination lawsuits and the like. But take a minute, sit down, regroup, clear your head, and look at your proposal from the other side of the table.
Maybe all of those bankers just did you a favor by saying no. Maybe it really is a bad idea It probably isn’t your first bad idea, and it probably won’t be your last.
The SBA 7(a) Loan Program
These are the most common SBA Loan Programs, however there are several types.
Standard 7(a) Loans offer the following
– Lending limits up to $5 Million
– Interest Rates are negotiable
– Terms are typically 10 – 25 years
– The SBA Guarantees 75% – 85%
– The Lending Process normally takes 30 – 90 days
SBA Express Loans
– Loan approval can occur in 36 hours while a loan closing will still take weeks
– Loan Maximum is $350,000
– SBA Guarantees 50% (making these loans more difficult to obtain)
Export Express / Export Working Capital Loans
– Designed specifically for Exporters
– Loan Maximum is $5 Million
– Loans under the Export Express Program are up to $500,000 and are approved generally within 24 hours
Veterans Advantage Loans
– For Veteran owned Small Businesses
– Loan Maximum is $5 Million
SBA Lines of Credit (CAPLines)
– Line of Credit financing for Small Businesses
– Loan Maximum is $5 Million
– Terms up to 10 years
The SBA CDC/504 Loan Program is generally used for larger real estate transactions, renovations, or equipment purchases.
– The SBA Guarantees 40% of the project, the bank handles 50%, and the borrower is responsible for the last 10%
– SBA Loan Guarantee Maximum is $5 Million
– Term is 10 – 20 years
– Collateral is required
The SBA Microloan Program is for small business owners looking for loans up to $50,000 that they would obtain through a nonprofit intermediary. Term lengths are up to 6 years with an interest rate of 6.5% – 13%.
Lender Requirements on all of these loans will vary greatly by lender. But in general, they will be looking for
– A Minimum Credit Score of 680
– 2 years of Business and Personal Income Tax Returns
– Current Financial Statements
– A Personal Financial Statement
– Other documentation such as you Business License and Financial Projections
– Personal Guarantees are generally required
– Pledged Collateral
With the current national nightmare in full swing, don’t be in a hurry, but be first in line.
Where do you find an SBA Loan?
Please go to this web address
This page shows which of their lenders, given the SBA’s internal numbers, are most active inside the 7(a) program. They have other pages inside their site, for the other loan types. Please remember that the SBA forces it’s lenders to be fair. Not everyone wants to lend inside the SBA Guidelines. Many will only lend if they can charge more. Let’s not be too hard on lenders outside of these programs. Smaller loans are much less profitable than larger ones. They also, by definition, carry much more risk. If you do not find your current banker inside this list, then you may need to go shopping.
Let me leave you with these last thoughts.
One of the concepts in Chinese Philosophy translates generally as
“Before one goes into debt, One should have already figured out how to get out of it.”
Let’s not act like debt is always a good thing. The first clients that I had who went out of business in the 2008 Real Estate Recession were the MBA’s with their Excel Spreadsheets who constantly lectured me about how leveraging their businesses was good.
Sooner or later these debts need to be repaid. Too much debt will make you insolvent and make it impossible for your business to be profitable. Be careful.
There is a difference between good debt and bad debt.
Good debt is when you go into debt to buy something that goes up in value, like real estate. Bad debt is when you go into debt to buy something that goes down in value, like a boat or a car.
If you are going to do this, make sure that it is good debt, and that you have a solid, reasonable way of repaying it. Make sure that it will increase the long term earnings potential of your enterprise.
If you can’t get comfortable with it yourself, then no banker ever will.
Accounting Solutions Ltd. stands ready to complete its mission and purpose of protecting you, your family, and your business. If there is anything that you need, or just need someone to talk to, please contact us. I’m here, and remain,
Sincerely yours,
Chris Amundson
Accounting Solutions Ltd.
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