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Capital sources: Small Business Administration
The Department of Commerce has established
several basic loan programs through the United States Small
Business Administration. The SBA may provide direct loans when
funds are available and allocated for that purpose by Congress,
but most of the programs involve loans made by private lenders but
guaranteed by the SBA. About $10 billion in guaranteed loans are
generated annually through the SBA.
If your collateral doesn't meet the standards of a
conventional loan offered by a bank, your next stop should be the
SBA. Your bank may even be a preferred lender with the SBA, and
can give you a loan under the SBA-guaranteed loan program. The bank
risk would then be minimized as the government guarantees payment.
How it works
Ask your bank if it is a participating SBA lender. If so, complete
the application forms and submit them to your bank. If not, contact
the SBA for a list of participating lenders and get the application
form from the lender. It will probably take you a few weeks to complete
the application and assemble the required records.
Requirements for a SBA loan are similar to a commercial
bank loan. See What
Lenders Look For. You will also need a business plan, personal
tax returns for the past three years, a personal financial statement,
resumes for key personnel, a 20 percent to 30 percent down payment
and assets you can use as collateral.
The bank will conduct its own credit analysis, and
if satisfied, will forward the loan package to the SBA. Experts
say the SBA processing time is only 24 to 36 hours.
The SBA will guarantee up to 90 percent of loans of
$150,000 or less and up to 85 percent of loans greater than that
sum. The maximum amount the SBA can guarantee to one borrower is
$750,000, with terms not exceeding 25 years. Repayment terms for
loans used to construct a building or buy real estate can be 25
years. The repayment term for machinery and equipment is 10 years;
it's seven years for working capital loans.
Interest rates vary and are negotiable between borrower
and lender, but they range from prime plus 2.75 percent for loans
with a maturity of less than seven years, to prime plus 4.25 percent
for low-documentation loans for less than seven years and less than
$25,000.
For more information, can call the nearest SBA office.
It's in the phone book with the United States listings, or you can
use the SBA Web site's online
office locator.
Updated: Sept. 27, 2005
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