Author: RogerP

SBA 7a Loan

    The SBA 7a Loan is the most used of the SBA Loan Programs. The SBA 7a Loan Program does not loan any money. The 7a Loan Program Guarantees the loan made by a Bank. The percentage of Guarantee is 85% on loans $150,000 or less and 75% on loans over $150,000. This percentage is at any point in time, meaning the bank will always have an exposure of 25% to 15% on the balance of the loan at any point in time during the loan repayment. 

    Loan size has been expanded from $2 million to $5 million. The maximum goes to $5.5 Million if the borrower is a manufacturer or meeting Green Renovations. The alternate size standard can be used which will usually be more generous than in the past. The Size Standard is Companies with a Net Worth of $15 million or less, and Companies with a Average two year Net Income of $5 Million or less. 

    Terms for the SBA 7a Loans are Inventory and Working Capital  can make loans of up to 10 years. Equipment, Fixtures and Furniture the term is 10 years or the Useful Life of the Assets. Real Estate has a maximum term of up to 25 years. 

    Rates for the SBA 7a Loans are Prime + 2.25% for loans greater than $50,000 with a term of less than seven years. For terms of greater than seven years and loans greater than $50,000 the rate is Prime + 2.75%, (rates can be higher for loans of less than $50,000). 

    There are two Fees on SBA 7a Loans. The first is a Guarantee Fee which is paid by the borrower but can be included or amortized into the loan amount. This fee is 2% for loans of less than $150,000, 3% for loans of $150,001 to $700,000, and 3.5% for loans over $700,000. The Guarantee fee is one quarter of a point for loans of 12 months or less. The second fee is the Lenders Ongoing Servicing Fee and this is usually included in the rate to the borrower within the maximum that can be charged. The fee is set annually but is usually about a Half a Point Annually. 

    This has been a good overview of the SBA 7a Loan Program but their are many rules and regulations that depend on the specifics of the Proposed Loan. Please Email me if I may be of service to you at roger@schlueterfinancial.com  or at my website at www.schlueterfinancial.com .

The Approach to a Bank for a Loan, or a SBA Loan

    This entry is concerning the Approach to your Bank for a Loan, even if you are looking at an SBA Loan. Always start out asking the Bank for a Conventional Loan ( a regular Real Estate, Equipment, Inventory, or Working Capital Loan). The Bank should be the one to decide on a SBA Loan requirement for your loan. The SBA does not loan money itself anymore. It did loan money at one time but now the SBA only guarantees the loans that it is involved with, (an exception is the SBA 504 Loan which is for Fixed Assets Only – Real Estate, Equipment – useful life of 10 years, and related Furniture Fixtures, Installation of Equipment and costs associated with the Real Estate Purchase and the SBA only lends up to 40%). Usually the SBA Guarantees the Bank Loan up to a certain amount. This can be 75% up to 90%, (90% only under certain conditions),of the bank loan at any time during the loan. The Bank calls the shots and has to want to make the loan under  the SBA conditions and requirements.
 
    The bank may bring up the need for the SBA Loan and inform you that this SBA Guarantee is the only way the bank will make a loan to you. Usually there is a reason like: not enough collateral for the loan, down payment too low, the asset to be bought with the loan is risky in its resaleability, you are a new business, your business had a bad year, your credit is not high enough for the bank, etc. Sometimes the bank will just decline the loan. You need to present the loan as a straight bank loan but let the banker know that you would like to know if there is any other ways to make the loan. 

    Always look at several lenders. Some banks do not lend in certain Industries like Restaurants, Recreation, etc. Some banks do not like to make loans with a SBA Guarantee. Some banks may have internal problems that exclude it from making loans of certain types by their regulators. Always look at several Lenders!