Category: Local Incentives, Grants & Loans
AGENCY: Small Business Administration (SBA)
DESCRIPTION: Often referred to as the 7(a) Program. Guarantees loans made by lenders to small businesses. The lender may sell the guaranteed portion into the secondary market or retain the asset.
• Includes the purchase of fixed assets or inventory; leasehold improvements; working capital; and debt refinancing.
• Maximum Program Benefits: Guarantees up to $1 million; maximum guaranty is 85% on loans up to $150,000 and 75% on loans greater than $150,000.
• Maturities: Normally seven years for working capital and up to 25 years for real estate.
• Rates: Interest rates may be fixed or variable. Fixed rate loans of $50,000 or more must not exceed prime plus 2.25 % if the maturity is less than seven years, and prime plus 2.75 % if the maturity is seven years or more.
• For loans between $25,000 and $50.000, maximum rates must not exceed prime plus 3.25% if the maturity is less than seven years, and prime plus 3.75 % if the maturity is seven years or more; and
• For loans of $25,000 or less, the maximum interest rate must not exceed prime plus 4.25% if the maturity is less than seven years, and prime plus 4.75 %, if the maturity is seven years or more.
• Fees: For loans of $150,000 or less, a 2 % guarantee fee will be charged. Lenders are again permitted to retain 25 % of the up-front guarantee fee on loans with a gross amount of $150,000 or less.
• For loans more than $150,000 but up to and including $700,000, a 3% guarantee fee will be charged;
• For loans greater than $700,000, a 3.5% guarantee fee will be charged; and
• For loans greater than $1,000,000, an additional. 25% guarantee fee will be charged for that portion greater than $1,000,000. The portion of $1,000,000 or less would be charged a 3.5 % guarantee fee. The portion greater than $1,000,000 would be charged at 3.75 %.
• The annual on-going servicing fee for all 7(a) Loans approved on or after October 1, 2005 shall be 0.545 % of the outstanding balance of the guaranteed portion of the loan. The legislation provides for this fee to remain in effect for the term of the loan.
• The SBA defines a small business as follows:
• Manufacturing-Maximum number of employees may range from 750 to 1,000;
• Wholesale-Maximum number of employees may not exceed 100;
• Retail/Service-Average annual receipts may not exceed $7 million to $35.5 million; and
• Construction-Average annual receipts may not exceed $7 million to $33.5 million.
• Applications are generally processed by the participating lender and the SBA in 20 working days or less. Certified lenders have a three-day turnaround from SBA and Preferred Lenders may unilaterally decide to originate, guarantee, service and liquidate loans.
• For more information on the loan guarantee program, visit http://www.sba.gov/financing/sbaloan/7a.html.