SBA LOANS

 

Banks and other private institutions partner with The U.S. Small Business Administration (SBA) to offer up to $2 million dollars in the Basic 7(a) Loan.


The SBA evaluates each 7(a) applicant based on the following criteria:

  1. Repayment ability from the cash flow of the business
  2. Personal Character*
  3. Management Capability
  4. Collateral*
  5. Owner's equity contribution 
  6. SBA size standards
  7. For-profit
  8. No internal resources (business or personal) to provide financing

 

*All owners of 20% or more are required to personally guarantee SBA loans.

Interest rates on these loans may be fixed or variable, are negotiated between the borrower and the lender, and are subject to SBA maximums, as described below:

 

Fixed Interest Rates

Loan Amount

Interest Rate

Maturity

$50,000 or more

Prime Plus 2.25%

less than 7 years

$50,000 or more

Prime Plus 2.75%

7 years or more

Between $25,000 and $50,000

Prime Plus 3.25%

less than 7 years

Between $25,000 and $50,000

Prime Plus 3.75%

7 years or more

$25,000 or less

Prime Plus 4.25%

less than 7 years

$25,000 or less

Prime Plus 4.75%

7 years or more

                       

Variable rate loans may be pegged to either the lowest prime 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."


To offset the costs of the SBA's loan programs to the taxpayer, the 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. SBA Loans cannot include any other processing fees, origination fees, application fees, points, brokerage fees, or bonus points.

Loan Amount

Guaranty Fee

$150,000 or less

2%

$150,000 to $700,000

3%

greater than $700,000

3.5% +.25% for amount greater than $1,000,000

Typical Contents of SBA 7(a) Loan Application

Section 1

Table of Contents

 

 

Section 2

Purchase Agreement

Escrow Documents

 

 

Section 3

Overview:
   Company History 

   Description of Company's Products/Services

 

 

Section 4

Financials on Company (covering past 3 years):
   Balance Sheets 

   Profit & Loss Statements
   Accounts Receivable Aging Reports that Matches YTD Balance Sheets
   List of Assets with Liquidation Value that Matches Balance Sheets
   Asset Schedule Allocations
   Debt Schedules
   Federal Tax Returns, Including all Schedules
   Organization Charts
   Payroll Detail, Including Tenure

 

 

Section 5

Seller’s Long-Term Customer Contracts

 

 

Section 6

Building Lease

 

 

Section 7

Non-Compete Agreement

Training Agreement

 

 

Section 8

Buyer's Resume and SBA 413 Personal Financial Statement
Buyers Credit Report, Verification of Down Payment

 

 

Section 9

Buyer's Tax Returns for Last Three Years

 

 

Section 10

Buyer & Seller Disclosure Statement and IRS 4506 Form

 

 

Section 11

Buyer’s Business Plan