Who can apply?

For profit businesses that qualify as small under SBA size standards, the SBA will not issue a loan guarantee for investment or speculative purposes. Real estate that is financed with a guaranteed loan must be at least 51% owner occupied.

Use of proceeds

SBA 7(a) loan proceeds may be used to purchase machinery, equipment, furniture, fixtures, real estate, inventory and supplies. Loan proceeds may also be used for leasehold improvements, working capital, and other eligible project costs. Refinance of existing debt is allowed as long as the refinance provides a "substantial benefit" to the business. A substantial benefit can typically be demonstrated by refinancing debt with a balloon feature, or by improving cash flow by at least 20%. Loan proceeds may NOT be used to finance floorplan needs, pay delinquent taxes, or finance the purchase of a partial interest in a business

Loan terms, fees, and collateral requirements

Typical loan terms are 5 to 7 years for working capital, furniture, fixtures, inventory and supplies, up to 10 years for equipment, and 25 years for real estate. In circumstances where there is a combination of various collateral components, the lender will typically calculate a term based on the weighted average of the collateral. It is common for a lender to place a lien on the borrowers primary residence, or other real estate collateral if the lender is not fully collateralized. The interest rate under the 7(a) program is a variable rate spread over the Prime rate. The maximum spread allowed by the SBA is 2.25% for maturities under 7 years and 2.75% for maturities over 7 years. The SBA charges a fee for the loan guarantee and this fee is generally built into the loan. The loan fee is a tiered structure that is based upon the guaranteed portion of the loan.

SBA 504 Program

The 504 program is a fixed asset program that provides long term financing for real estate or equipment with a minimum 10-year useful life. This program utilizes two loans: a 1st trust issued by a bank or non-bank lender and a 2nd trust issued by a Certified Development Company (CDC).

Who can apply?

For profit businesses that qualify as small under SBA size standards, the SBA will not issue a loan guarantee for investment or speculative purposes. Real estate that is financed with a guaranteed loan must be at least 51% owner occupied

Use of proceeds

Proceeds may be used for the purchase of fixed assets only. Proceeds may not be used for refinance of fixed assets or for the purchase of other assets (such as inventory, furniture, or goodwill).

Loan terms, fees, and collateral requirements

Typical loan terms are 10 years for equipment and 20 years for real estate. The maximum participation of the CDC (2nd trust lender) is 40% of the total project cost, 35% if the business is less than 2 years old or if a limited use facility and 30% if new business and limited use facility. Minimum equity injection by the borrower is 10%. The lender sets the interest rate on the 1st trust. As their loan to value is generally 50% or less, they must offer an attractive rate to be competitive. The marketplace sets the interest rate on the 2nd trust. 504 debentures are typically sold monthly in the open market to investors and you can access historical 504 rates here