StemenCapital.com

MONEY SOURCES

Angel Investors

Commercial Banks

Community Loans

Credit Cards

Credit Unions/Cooperatives

Factoring Companies

Federal Loans/Grants

Finance Companies

Internet Capital Sources

Leasing Companies

Private Lenders/Investors

Trade Credit

Venture Capital

State Loans/Grants

Government & Community Assistance to Obtain Money

SBA 7(a) Express Loan Program

Financial Resources For Northwest & West Central Ohio Entrepreneurs

About
Contact

Purpose of Program

The 7(a) Loan Program is the SBA’s primary program to help start-up and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels. The name comes from section 7(a) of the Small Business Act, which authorizes the SBA to provide business loans to American small businesses.

Eligible Businesses

American for profit small business that satisfy theSBA definition of a small business, and be an eligible business. The business cannot have sufficient funds available from other sources (including owners), must be able to repay the loan on time, have good character, have management expertise and commitment, and have a feasible business plan.

Eligible Use of Funds

Must used for an eligible purpose which includes a wide variety of general business purposes, including working capital, inventory, seasonal lines of credit, revolving lines of credit, machinery and equipment, furniture, fixtures, land and buildings (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). May be used for revolving line of credit with a maximum maturity of 7 years.

Loan Amounts

SBA will guarantee 50% of gross loans up to $350,000.The limit is temporarily raised to $1 million until 9/26/2011.

Repayment Term

Loan maturities are based on the ability to repay, the purpose of the loan proceeds, and the useful life of the assets financed. However, maximum loan maturities have been established: 25 years for real estate and equipment (should not exceed life of equipment which is generally 5-10 years), and terms for a working capital or inventory loan should be appropriate to the borrower’s ability to repay up to 10 years. Revolving lines of credit shall not exceed 7 years.

Interest Rates

Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums, which are pegged to the prime rate, the LIBOR rate, or an optional peg rate. Interest rates may be fixed or variable. These are the interest rates for fixed rate and variable rate loans:

Fixed rate loans of $50,000 or more must not exceed the base rate plus 4.5 percent.

For loans of $50,000 or less, the maximum interest rate must not exceed the base rate plus 6.5 percent . 

Variable rate loans may be pegged to the lowest prime rate, the LIBOR Rate, or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan. It is calculated quarterly and published in the Federal Register. The lender and the borrower negotiate the amount of the spread, which will be added to the base rate. An adjustment period is selected which will identify the frequency at which the note rate will change. It must not be more often than monthly and it must be consistent (e.g., monthly, quarterly, semiannually, annually, or any other defined period).

Fees

To offset the costs of its loan programs to the taxpayer, SBA charges lenders a guaranty fee and a servicing fee for each loan approved and disbursed. The amount of the fees is based on the guaranty portion of the loans. The lender may charge the upfront guaranty fee to the borrower after the lender has paid the fee to SBA and has made the first disbursement of the loan. The lender's annual service fee to SBA cannot be charged to the borrower.

For loans of $150,000 or less, a 2 percent guaranty fee will be charged. Lenders are again permitted to retain 0.25 percent of the up-front guaranty fee on loans with a gross amount of $150,000 or less.

For loans more than $150,000 but up to and including $700,000, a 3 percent guaranty fee will be charged.

For loans greater than $700,000, a 3.5 percent guaranty fee will be charged.

For loans greater than $1,000,000, an additional 0.25 percent guaranty fee will be charged for that portion greater than $1,000,000. The portion of $1,000,000 or less would be charged a 3.5 percent guaranty fee; the portion greater than $1,000,000 would be charged at 3.75 percent.

The annual on-going servicing fee for all 7(a) loans approved on or after October 1, 2007, shall be 0.550 percent of the outstanding balance of the guaranteed portion of the loan. The legislation provides for this fee to remain in effect for the term of the loan.

Prepayment

Prepayment penalties apply when a loan:

  • Has a maturity of 15 years or more and the borrower is prepaying voluntarily; 
  • The prepayment amount exceeds 25 percent of the outstanding balance of the loan; 
  • The prepayment is made within the first three years after the date of the first disbursement (not approval) of the loan proceeds.

The prepayment fee is:

  • During the first year after disbursement, 5 percent of the amount of the prepayment;
  • During the second year after disbursement, 3 percent of the amount of the prepayment; 
  • During the third year after disbursement, 1 percent of the amount of the prepayment.

Collateral, Security

Each lender has its own lending and credit requirements. Generally, they require some type of collateral and personal guarantees of significant owners. The type and amount of collateral is determined by lender and government regulations, and risk characteristics of the loan. Collateral must have documented value (which may require third party appraisal) sufficient to protect the interest of the lender and the SBA in the event of loan default.

Assignment

Participation Requirements

All funds must come from other sources. This program does not loan money, it limits potential losses of the loan it guarantees.

Additional Considerations

SBA does not extend financial assistance to businesses when the financial strength of the individual owners or the company itself is sufficient to provide all or part of the financing. Both business and personal financial resources are reviewed as part of the eligibility criteria. If these resources are found to be excessive, the business will be required to use those resources in lieu of part or all of the requested loan proceeds.

How to Apply

SBA itself does not make loans, but rather guarantees a portion of loans made and administered by commercial lending institutions. A small business applies directly to a lender for financing. Most American banks participate in the program. The lender reviews the application and decides if it merits a loan on its own or if it requires additional support in the form of an SBA guaranty. If the lender is not willing to provide the loan, even with an SBA guaranty, SBA cannot force the lender to do so. So it is important for applicants to be prepared when they approach a lender; they should know and meet the lender’s criteria and requirements as well as those of the SBA. To be considered for an SBA–backed loan, the applicant must be both eligible and creditworthy. A link to a list of approved SBA lenders is at the top of this page.

Links to Loan Application and/or Specific Information

The SBA has a web site that identifies required SBA forms and suggestions for information that should be included in your request. It is at http://www.sba.gov/financialassistance/borrowers/application/apply/index.html

Go here for Ohio SBA Participating Lenders

Small Business Administration
Columbus District Office
401 N. Front Street, Suite 200
Columbus, Ohio 43215
614-469-6860

Useful Information

Interest Rate Links

Business Management Links

Glossary of Important Financial Terms You Should Understand

How To Prepare A Business Plan to Obtain Money

Home
About Contact Home