SBA Loans

Business Loan and Grants

SBA Loans

The U.S. Small Business Administration (SBA) assists small business owners with starting and expanding their businesses by helping them get loans through private banks and financial institutions. SBA offers a number of low-interest loan programs for business owners who may be having difficulty getting traditional bank loans.

To apply for an SBA loan, you need to visit your local participating bank or lending institution. When you apply for an SBA loan you are actually applying for a commercial loan, structured according to SBA requirements, which receives an SBA guaranty. This guaranty is portion of the loan the SBA will pay back to the lender should you default on your loan payments.

To get a list of SBA lenders in your area, contact your SBA Distrct Office.

SBA's Financial Assistance Guide describes SBA loan programs, including eligibility requirements, and how to apply for them.

SBA Loan Application Checklist

The following forms and documents are required when applying for a loan that is guaranteed by the U.S. Small Business Administration.

SBA does not provide direct loans. You will need to contact your local bank or lending institution to obtain an SBA loan. Your lender will submit your loan package to SBA.

You and your lender should review this checklist to ensure all documentation is included.

SBA Loan Application

Personal Background

Statement of Personal History - SBA Form 912

  1. Personal Financial Statement

    Personal Financial Statement - SBA form 413

  2. Business Financial Statements

    Detailed, signed Balance Sheet and Profit & Loss. Statements current (within 90 days of application) and last three (3) fiscal years Supplementary Schedules required on Current Financial Statements.

  3. Projected Financial Statements

    Detailed one (1) year projection of Income & Finances (please attach written explanation as to how you expect to achieve same).

  4. Ownership and Affiliations

    A list of names and addresses of any subsidiaries and affiliates, including concerns in which the applicant holds a controlling (but not necessarily a majority) interest and other concerns that may be affiliated by stock ownership, franchise, proposed merger or otherwise with the applicant.

  5. Business Certificate / License

    Certificate of Doing Business (If a corporation, stamp corporate seal on SBA Form 4 section 12).

  6. Loan Application History

    By Law, the SBA may not guarantee a loan if a business can obtain funds on reasonable terms from a bank or other private source. A borrower therefore must first seek private financing.

    A company must be independently owned and operated, not dominant in its field and must meet certain standards of size in terms of employees or annual receipts. Loans cannot b made to speculative businesses, newspapers, or businesses engaged in gambling.

    Applicants for loans must also agree to comply with SBA regulation that there will be no discrimination in employment or services to the public, based on race, color, religion, national origin, sex or marital status.

  7. Business Income Tax Returns

    Signed Business Federal Income Tax Returns for previous three (3) year.

  8. Personal Tax Returns

    Signed Personal Federal Income Tax Returns of principals for previous three (3) years.

  9. Resumes

    Personal Resume including business experience of each principal.

  10. Business Overview and History

    Brief history of the business and its problems. Include an explanation of why the SBA loan is needed and how it will help the business.

  11. Business Lease

    Copy of Business Lease (or note from landlord) giving terms of proposed lease.

  12. For purchasing an existing business:

    a. Current Balance Sheet and Profit & Loss Statement of business to be purchased.
    b. Previous two (2) years Federal Income Tax Returns of the business.
    c. Propose Bill of Sale Including: Terms of Sale.
    d. Asking Price with schedule of:

    1. Inventory
    2. Machinery & Equipment
    3. Furniture & Fixtures

The following are direct links to information about commonly requested SBA programs:

Starting and Expanding Businesses

  • Basic 7(a) Loan Program
    For starting, acquiring and expanding a small business, 7(a) loans are the most basic and most used type loan of SBA's business loan programs. Borrowers must apply through a participating lender institution.

7(a) loans are the most basic and most used type loan of SBA's business loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the Agency to provide business loans to American small businesses.

All 7(a) loans are provided by lenders who are called participants because they participate with SBA in the 7(a) program. Not all lenders choose to participate, but most American banks do. There are also some non-bank lenders who participate with SBA in the 7(a) program which expands the availability of lenders making loans under SBA guidelines.

7(a) loans are only available on a guaranty basis. This means they are provided by lenders who choose to structure their own loans by SBA's requirements and who apply and receive a guaranty from SBA on a portion of this loan. The SBA does not fully guaranty 7(a) loans. The lender and SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a guaranty against payment default. It does not cover imprudent decisions by the lender or misrepresentation by the borrower.

Under the guaranty concept, commercial lenders make and administer the loans.

The business applies to a lender for their financing. The lender decides if they will make the loan internally or if the application has some weaknesses which, in their opinion, will require an SBA guaranty if the loan is to be made. The guaranty which SBA provides is only available to the lender. It assures the lender that in the event the borrower does not repay their obligation and a payment default occurs, the Government will reimburse the lender for its loss, up to the percentage of SBA's guaranty. Under this program, the borrower remains obligated for the full amount due.

All 7(a) loans which SBA guaranty must meet 7(a) criteria. The business gets a loan from its lender with a 7(a) structure and the lender gets an SBA guaranty on a portion or percentage of this loan. Hence the primary business loan assistance program available to small business from the SBA is called the 7(a) guaranty loan program.

A key concept of the 7(a) guaranty loan program is that the loan actually comes from a commercial lender, not the Government. If the lender is not willing to provide the loan, even if they may be able to get an SBA guaranty, the Agency can not force the lender to change their mind. Neither can SBA make the loan by itself because the Agency does not have any money to lend. Therefore it is paramount that all applicants positively approach the lender for a loan, and that they know the lenders criteria and requirements as well as those of the SBA. In order to obtain positive consideration for an SBA supported loan, the applicant must be both eligible and creditworthy.

What SBA Seeks In A Loan Application:

In order to get a 7(a) loan, the applicant must first be eligible. Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner's equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.

Eligibility Criteria:

All applicants must be eligible to be considered for a 7(a) loan. The eligibility requirements are designed to be as broad as possible in order that this lending program can accommodate the most diverse variety of small business financing needs. All businesses that are considered for financing under SBA’s 7(a) loan program must: meet SBA size standards, be for-profit, not already have the internal resources (business or personal) to provide the financing, and be able to demonstrate repayment. Certain variations of SBA’s 7(a) loan program may also require additional eligibility criteria. Special purpose programs will identify those additional criteria.

Eligibility factors for all 7(a) loans include: size, type of business, use of proceeds, and the availability of funds from other sources. The following links will provide more detailed information on these eligibility issues.

Character Considerations:

SBA must determine if the principals of each applicant firm have historically shown the willingness and ability to pay their debts and whether they abided by the laws of their community. The Agency must know if there are any factors which impact on these issues. Therefore, a "Statement of Personal History" is obtained from each principal.

Other Aspects Of The Basic 7(a) Loan Program

In addition to credit and eligibility criteria, an applicant should be aware of the general types of terms and conditions they can expect if SBA is involved in the financial assistance. The specific terms of SBA loans are negotiated between an applicant and the participating financial institution, subject to the requirements of SBA. In general, the following provisions apply to all SBA 7(a) loans. However, certain Loan Programs or Lender Programs vary from these standards. These variations are indicated for each program.

Certified Development Company (CDC) 504 Loan Program

The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 270 CDCs nationwide, with each covering a specific geographic area.

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped.

Maximum Debenture

The maximum SBA debenture is $1,500,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $50,000 provided by the SBA except for "Small Manufacturers" which have a $100,000 job creation or retention goal (see below).The maximum SBA debenture is $2.0 million when meeting a public policy goal.

The public policy goals are as follows:

  • Business district revitalization.
  • Expansion of exports.
  • Expansion of minority business development.
  • Rural development.
  • Increasing productivity and competitiveness.
  • Restructuring because of federally mandated standards or policies.
  • Changes necessitated by federal budget cutbacks.
  • Expansion of small business concerns owned and controlled by veterans (especially service-disabled veterans)
  • Expansion of small business concerns owned and controlled by women.


The maximum debenture for "Small Manufacturers" is $4.0 million. A Small Manufacturer is defined as a small business concern that has:
Its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS); and All of its production facilities located in the United States.

In order to qualify for a $4 million 504 loan, the Small Manufacturer must 1) meet the definition of a Small Manufacturer described above, and 2) either (i) create or retain at least 1 job per $100,000 guaranteed by the SBA [Section 501(d)(1) of the Small Business Investment Act (SBI Act)], or (ii) improve the economy of the locality or achieve one or more public policy goals [sections 501(d)(2) or (3) of the SBI Act].

What funds may be used for :

Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment.

The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.

Terms, Interest rates and Fees:

IInterest rates on 504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately three (3) percent of the debenture and may be financed with the loan.

Collateral:

Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

Eligible Business:

To be eligible, the business must be operated for profit and fall within the size standards set by the SBA. Under the 504 Program, the business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.

Microloan Program

The Microloan Program provides very small loans to start-up, newly established, or growing small business concerns. Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The average loan size is about $13,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level.

Terms, Interest Rates, and Fees:

The maximum term allowed for a microloan is six years. However, loan terms vary according to the size of the loan, the planned use of funds, the requirements of the intermediary lender, and the needs of the small business borrower. The maximum loan amount is $35,000, however, the average loan amount is around $13,000. Interest rates vary, depending upon the intermediary lender and costs to the intermediary from the U.S. Treasury. Generally these rates will be between 8 eight percent and thirteen percent.

Collateral

Each intermediary lender has its own lending and credit requirements. However, business owners contemplating application for a microloan should be aware that intermediaries will generally require some type of collateral, and the personal guarantee of the business owner.

Technical Assistance

Each intermediary is required to provide business based training and technical assistance to its microborrowers. Individuals and small businesses applying for microloan financing may be required to fulfill training and/or planning requirements before a loan application is considered.

How to Apply:

Small businesses that are interested in applying for a microloan should contact a microlender in their area.

Microlenders (Intermediaries) are located in 46 of the 50 states, the District of Columbia and Puerto Rico. Alaska, Rhode Island, Utah and West Virginia are the only states without an Intermediary. Rhode Island is currently being serviced by South Eastern Economic Development out of Taunton, MA and a portion of West Virginia is being serviced by Washington County Council on Economic Development out of Washington, PA.

Information For Non-Profit Entities Seeking To Become Intermediary Lenders
Applying to become an Intermediary

Organizations interested in becoming Intermediaries should contact SBA for information on the application process, but generally applicants must meet three general criteria:

  • An applicant must be organized as a non-profit organization, quasi-governmental economic development corporation, or an Agency established by a Native American Tribal Governement;
  • An applicant must have made and serviced short-term fixed rate loans of not more than $35,000 to newly established or growing small businesses for at least one year; and
  • An applicant must have at least one year of experience providing technical assistance to its borrowers.

Applications should contain supporting information describing:

  • The types of businesses assisted in the past and those the applicant intends to assist with Microloans;
  • The average size of the loans made in the past and the average size of intended Microloans;
  • The extent to which the applicant will make Microloans to small businesses in rural areas;
  • The geographic area in which the applicant intends to operate, including a description of the economic and demographic conditions existing in the intended area of operations;
  • The availability and cost of obtaining credit for small businesses in the area;
  • The applicant's experience and qualifications in providing marketing, management, and technical assistance to small businesses;
  • Any plan to use other technical assistance resources (such as counselors from the Service Corps of Retired Executives) to help Microloan borrowers.

Information For Non-Profit Entities Seeking To Become Intermediary LENDERS

The Microloan Program provides very small loans to start-up, newly established, or growing small business concerns. Under this program, SBA makes funds available to nonprofit community based lenders (intermediaries) which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The average loan size is about $13,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level.

Applying to Become an Intermediary Lender

Organizations interested in becoming Intermediaries should contact SBA for information on the application process and should review the regulations published in the Code of Federal Regulations, specifically sections 120.700-120.716. In order to participate in the program, applicants must meet three general criteria:

  • An applicant must be organized as a non-profit organization, quasi-governmental economic development corporation, or an Agency established by a Native American Tribal Governement;
  • An applicant must have made and serviced short-term fixed rate loans of not more than $35,000 to newly established or growing small businesses for at least one year; and
  • An applicant must have at least one year of experience providing technical assistance to its borrowers.


Applications should contain supporting information describing:

  • The types of businesses assisted in the past and those the applicant intends to assist with Microloans;
  • The average size of the loans made in the past and the average size of intended Microloans;
  • The extent to which the applicant will make Microloans to small businesses in rural areas;
  • The geographic area in which the applicant intends to operate, including a description of the economic and demographic conditions existing in the intended area of operations;
  • The availability and cost of obtaining credit for small businesses in the area;
  • The applicant's experience and qualifications in providing marketing, management, and technical assistance to small businesses;
  • Any plan to use other technical assistance resources (such as counselors from the Service Corps of Retired Executives) to help Microloan borrowers.


Terms and Conditions of an SBA Loan to an Intermediary

An Intermediary may not borrow more than $750,000 in the first year of participation in the program. In later years, the Intermediary's obligation to SBA may not exceed an aggregate of $3.5 million, subject to statutory limitations on the total amount of funds available per state.

During the first year of the loan, an Intermediary is not required to make any payments, but interest accrues from the date that SBA disburses the loan proceeds to the Intermediary. After that, SBA will determine the periodic payments. The loan must be repaid within 10 years.

The interest rate charged to the Intermediary is equal to the rate applicable to five-year obligations of the United States Treasury, adjusted to the nearest one-eighth percent, less 2.00 percent during the first year and 1.25 percent in subsequent years. Intermediaries that maintain an average loan size of $10,000 are known as Specialized Intermediaries and maintain the rate applicable to five-year obligations of the United States Treasury, adjusted to the nearest one-eighth percent, less two percent. Portfolios are evaluated annually to determine the applicable rate.

Intermediary Lender's Financial Contribution

The Intermediary must contribute from non-Federal sources an amount equal to 15 percent of any loan that it receives from SBA. The contribution may not be borrowed. For purposes of this program, Community Development Block Grants are considered non-Federal sources.

As security for repayment of the SBA loan, an Intermediary must pledge to SBA a first lien position in the Microloan Revolving Fund (MRF) (described below), Loan Loss Reserve Fund (described below), and all notes receivable from Microloans.

SBA does not charge Intermediaries any fees for loans under this Program. An Intermediary may, however, pay minimal closing costs to third parties, such as filing and recording fees.

Microloan Revolving Fund

The Microloan Revolving Fund (``MRF'') is an interest-bearing Deposit Account into which an Intermediary must deposit the proceeds from SBA loans, its contributions from non-Federal sources, and payments from its Microloan borrowers. An Intermediary may only withdraw from this account the money needed to establish the Loan Loss Reserve Fund, to make microloans to borrowers, and to repay SBA.

Loan Loss Reserve Fund

The Loan Loss Reserve Fund (``LLRF'') is an interest-bearing Deposit Account which an Intermediary must establish to pay any shortage in the MRF caused by delinquencies or losses on Microloans. An Intermediary must maintain the LLRF until it has repaid all obligations it owes SBA. An Intermediary must maintain a balance on deposit in its LLRF equal to 15 percent of the outstanding balance of the notes receivable owed to it by its Microloan borrowers (``Portfolio'').

Conditions on Loans by Intermediaries to Microloan Borrowers

An intermediary may make Microloans to any small business eligible to receive financial assistance under this part. A borrower may also use Microloan proceeds to establish a nonprofit child care business. Proceeds from Microloans may be used only for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Loans can not be made to acquire land or property. SBA does not review Microloans for creditworthiness.

Generally, intermediaries should not make a Microloan of more than $10,000 to any borrower. An Intermediary may not make a Microloan of more than $20,000 unless the borrower demonstrates that it is unable to obtain credit elsewhere at comparable interest rates and that it has good prospects for success. An Intermediary may not make a Microloan of more than $35,000, and no borrower may owe an Intermediary more than $35,000 at any one time. Each Microloan must be repaid within six years.

(The maximum interest rate that can be charged a Microloan borrower is determined by the following formula:

  • On loans of more than $10,000, the interest rate charged on the SBA loan to the Intermediary, plus 7.75 percentage points; and
  • On loans of $10,000 or less, the interest rate charged on the SBA loan to the Intermediary, plus 8.5 percentage points.


Technical Assistance Funds to Intermediary Lenders to Assist Microloan Borrowers

An Intermediary is eligible to receive grant funding from SBA of not more than 25 percent of the outstanding balance of all SBA loans to the Intermediary. The actual amount of grant funding is determined by a set formula and is subject to availability of appropriated funds. Intermediaries that do not meet minimum performance critera are not eligible to receive grant funds. The Intermediary must contribute, solely from non-Federal sources, an amount equal to 25 percent of the grant. Contributions may be made in cash or in kind, but an Intermediary may not borrow its contribution. It may only use grant funds to provide Microloan borrowers with marketing, management, and technical assistance. Up to 25 percent of the funds can be used to provide information and technical assistance to prospective Microloan borrowers. Grant fund may be used to attend training required by SBA, but the use of funds for this purpose must be approved by SBA. Intermediaries may not enter into third party contracts for the provision of technical assistance to program clients.

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