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Finding capital for your business is always a struggle. Failing to acquire capital can hinder your ability to grow, stay competitive, and service your customer’s needs. According to a U.S. Bank study, a staggering 82% of businesses fail because of cash flow problems. We have put together a breakdown of loan offerings you can apply for through the small business administration (SBA).

The U.S. Small Business Administration helps Americans start, build, and grow businesses. It was created in 1953 as an independent agency of the federal government to aid, counsel, assist, and protect the interests of small business owners. The SBA also works to preserve free competitive enterprise and maintain and strengthen the overall economy of our nation. As a result, it partners with numerous financial establishments nationwide such as bank of America to offer these loan programs.

The basic eligibility requirements to participate in SBA loan programs are outlined below. Eligible businesses must:

  • Operate for profit
  • Be engaged in, or propose to do business in, the U.S. or its territories
  • Have reasonable owner equity to invest
  • Use alternative financial resources, including personal assets, before seeking financial assistance

Before reviewing the types of SBA loan offerings, you have access to, lets review a few terms you may not be familiar with.

Maximum loan amount: This is the maximum amount you can borrow under this program.

Maximum SBA guarantee %: This is the percentage of the loan the SBA promises to cover if you default on the loan. The SBA provides this guarantee to alleviate some of the risk It’s risk-averse lenders fear.

Interest rate: This is the cost of the loan, measured as a percentage of the principle.

Eligibility decision: This term refers to the person who has the final decision on whether you get a loan or not.

SBA turnaround time: This is the time it takes the SBA process your application.

Collateral: This is your pledge on a specific property application to secure repayment of the loan.

The SBA has established many financing options to help small businesses grow and innovate. These programs include:

The 7(a) Loan, the SBA’s Largest Financing Program

The 7(a) loan is the SBA’s most popular and flexible loan program. You can use a 7(a) loan to buy real estate, equipment, or inventory for your small business. It may also be used for working capital, to refinance business debt or purchase a small business.

Option 1: Standard 7(a)

Maximum loan amount: $5 million

Maximum SBA guarantee %: 85% for loans up to $150,000 and 75% for loans greater than $150,000.

Interest rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum. Maximum interest rates can be found at sba.gov.

Eligibility decision: The SBA gives the Lender the authority to set their own eligibility standards.

SBA turnaround time: 5-10 business days

Collateral: Lenders are not required to take collateral for under $25,000.

For loans more than $350,000, the SBA requires that the lender collateralize the loan to the maximum extent possible up to the loan amount.

The 7(a) small loan function like the 7(a) standard loan except that the approval standards are less rigorous. If you fail to pass the 7(a) small loan prescreening, you will have to go through the more rigorous 7(a) standard process.

Option 2 : 7(a) Small Loan

Maximum loan amount: $350,000

Maximum SBA guarantee %: 85% for loans up to $150,000 and 75% for loans greater than $150,000.

Interest rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum. Maximum interest rates can be found at sba.gov.

Eligibility decision: The SBA gives the Lender the authority to set their own eligibility standards.

SBA turnaround time: 5-10 business days

Collateral: Lenders are not required to take collateral for under $25,000.

For loans over $25,000, the lender must follow the collateral policies and procedures that it has established and implemented for its similarly-sized non-SBA-guaranteed commercial loans

SBA Express Loan

If you need a quick infusion of capital, an SBA Express Loan might be exactly what you need. Featuring a simplified process, these loans are delivered by experienced lenders who are authorized to make credit decisions on behalf of the SBA. These can be term loans or revolving lines of credit. The SBA Express program features an accelerated turnaround time for SBA review. The SBA will respond to your application within 36 hours.

Maximum loan amount: $350,000

Maximum SBA guarantee %: 50%

Interest rate: Lenders and borrowers can negotiate the interest rate, but it may not exceed the SBA maximum. Maximum interest rates can be found at sba.gov.

Eligibility decision: The SBA gives the Lender the authority to set their own eligibility standards.

SBA turnaround time: Within 36 hours

Collateral: May use their existing collateral policy for loans over $25,000 up to $350,000.

Community Advantage Program

To make business capital available to underserved communities, the SBA established the Community Advantage Pilot Program. This program offers financing for women, veterans, low-income borrowers, and minority entrepreneurs who are just starting a business or have been in business for a few years. Participants in this program receive free business counseling, as they work with a community-based financial institution.

Maximum loan size: $250,000

Maximum SBA guarantee %: 50% for loans up to $150,000, 75% for loans greater than $150,000, and 90% for International Trade loans

Maximum interest rate: 6%

SBA turnaround time: 5-10 days

Program expiration date: March 31, 2020

504 Certified Development Company Loan Program

The 504 loan program is best if you need to purchase commercial real estate or business machinery. If you do not qualify for traditional financing, but would like to purchase real estate, or buy heavy equipment for your business, ask about the 504-loan program. It provides competitive fixed-rate mortgage financing through a lender and a Certified Development Company.

Maximum loan amount: $5 million

Maximum SBA guarantee %:

$500,000, 1st lien with a bank (loan obtained from a private sector lender covering up to 50% of the total project cost).

$400,000, 2nd lien with 504 loan, 20-year, fixed rate (loan obtained through a CDC, funded through an SBA-guaranteed debenture, covering up to 40% of the total project cost).

$100,000, borrower contribution (contribution from the borrower of at least 10% of the total project cost/) Interest rate: Interest rates on 504 Loans are correlated with the current market rate.

Eligibility decision: The SBA gives the Lender the authority to set their own eligibility standards

Collateral: Generally, the project assets being financed are used as collateral. Personal guarantees are also required. They must be 20% of the loan amount.

CAPlines

CAPLines is an umbrella program that helps small businesses meet their short-term and cyclical working-capital needs. CAPLines can be used for contract financing, seasonal lines of credit, builder’s line of credit, or for general working capital lines. It features four lines.

Seasonal CAPLine: the loan can only be used to finance the seasonal increases of accounts receivable and inventory — or in some cases associated increased labor costs. It can be revolving or non-revolving.

For example, your business sells Christmas trees. You don’t have the cash to purchase your inventory for your business, so you take out a Seasonal CAPLine loan. You take the proceeds for the Christmas season pay back the loan at the end of the year and pocket the difference.

Contract CAPLine: This line finances the direct labor and material cost associated with performing assignable contracts. It can be revolving or non-revolving. For example, if you have a contract to build widgets and you have not made significant progress on the contract, you can apply for a contract CAPLine loan to pay for material and labor to fulfill the terms of the contract.

Builders CAPLine: This loan can be used to finance labor and material costs for a small general contractor. It can be used to construct or renovate commercial or residential buildings. The building project serves as the collateral, and loans can be revolving or non-revolving.

In other words, imagine that You’re a home builder but do not have a contract to build x number of houses and you have a track record of selling what you build. Then you could take out a Builders CAPLine loan to pay for the materials and labor to build.

Working CAPline: This is an asset-based revolving line of credit for businesses unable to meet credit standards associated with long-term credit. Repayment comes from converting short-term assets into cash, which is remitted to the lender. This line generally is used by businesses that provide credit to other businesses.

Short term capital needs. You sell a widget and you need capital to purchase your stock. You take out Working CAPline loan. You sell your widget and pay back the loan as your customers pay you.

Running and growing your business will never be simple, but there are plenty of resources out there to make it a little easier. The SBA has a verity of loan programs to help business owners grow and sustain their business. XcelHR is always here to help you manage and run your payroll, administer benefits and Human resource needs. you can focus on bringing your vision for your business into reality. Contact us today.