Is SBA lending right for you and your business? Here are some questions and answers designed to introduce the topic to people who are new to entrepreneurship and to provide a quick refresher to those who have been in business for a while.
What is the SBA?
The U.S. Small Business Administration (SBA) is a federal agency charged with helping the U.S. small business sector grow and flourish.
Founded in 1953, the agency provides small businesses with access to capital, plus counseling, education, technical assistance and training. It also helps small businesses with government contracting and advocates for the small business community.
How does the SBA help with financing? What is the relationship between the SBA and banks?
Access to financing is established through various SBA lending programs that specify loan size, lender qualifications, loan purpose and terms.
The SBA doesn’t actually make the loan, but guarantees a portion of the loan made by the bank. This reduces the bank’s risk as a lender and makes the extension of credit more likely.
What are the principal SBA loan products?
The SBA’s general small business loan program is known as the “7(a) Loan Program.” Loans extended under this program are distinguished from conventional loans by the government guarantee, which may range up to 75 percent of the principal amount of the loan. Maximum loan size is $5 million, with terms from seven to 25 years, and loan proceeds which may be used for working capital, inventory, acquisitions, equipment and debt refinancing.
The SBAExpress Program offers lines of credit as well as term loans. The government guarantee may not exceed 50 percent of the loan amount.
The SBA 504 Loan Program allows the small business owner to purchase an owner-occupied industrial, commercial building or fixed assets at below-market interest rates with as little as 10 percent down.
Are there basic eligibility requirements for SBA financing?
Yes. There are a number of eligibility requirements, and they include limits on how large a business can be and still be eligible for SBA assistance. These limits are called “size standards” and they vary from industry to industry. Visit SBA.GOV for details.
What is a Preferred SBA Lender?
The SBA confers “Preferred Lender” status on banks, such as City National, that have shown proficiency in making and servicing SBA-guaranteed loans. The SBA delegates credit authority to Preferred Lenders in order to speed up the financial assistance available to American small businesses.
How do I start the process?
First, check your credit. Do you have real equity in your business? Is your cash flow consistently positive? What about working capital and collateral? Are you managing well (accounts payable, collections, inventory)?
Next, determine your financial needs. Is it for working capital? Managing cyclicality or seasonal needs? Expansion? Lenders will need to understand your purpose in seeking funds.
Gather documentation, including tax returns and financial statements.
Finally, connect with SBA-approved lenders. Many (including City National) have SBA specialists available through branch offices. The SBA also has an online referral tool (LINC) that can quickly connect applicants to participating lenders.
Lori Haney is senior vice president and Northern Nevada market manager at City National Bank.