The Prequalification Loan Program uses intermediary organizations to help small businesses develop successful loan packages that will secure SBA business loans. The targets of this program are new and emerging businesses, veterans, low-income borrowers, disabled business owners, exporters, and rural and specialized industries.
The intermediary organizations work with the applicant businesses to make sure the business plan is complete, and that the application is eligible and has credit merit. Once the intermediary is satisfied as to the proceeding, it will submit the application to the SBA for expedited processing.
If the SBA determines that the applicant is eligible and has sufficient credit merit to support approval, it will issue a commitment letter on behalf of the applicant, which letter indicates the SBA’s willingness to guaranty a loan made by a lender under specified terms and conditions. The intermediary organization helps the borrower locate a lender offering the best terms. The applicant then takes the letter and its application to a lender for a decision.
For a more detailed description of these intermediary organizations, see Finding an SBA Office and SBA Lenders Near You. For a list of intermediary organizations (Small Business Development Centers) in your area, go to www.sba.gov/sbdc/index.html. Other than the maximum loan amount, all other aspects of the Prequalification Program, i.e., interest rates, maturities, collateral policy and guaranty percentages, follow those of the standard 7(a) loan program.
Under the Prequalification Program, the maximum loan amount is $250,000, 75 percent of which will be guaranteed by the SBA, or 85 percent if the loan is less than $150,000.
SBA Section 504 Certified Development Company (CDC) Program Loans
The Certified Development Company (CDC), a 504 Loan Program, provides growing businesses with long-term, fixed-rate financing for specific major fixed assets, such as land and buildings. A typical 504 project consists of three elements: (1) a loan secured from a private-sector lender with a senior lien; (2) a loan secured from a CDC with a junior lien covering up to 40 percent of the total cost; and (3) a contribution of at least 10 percent equity from the borrower.
A CDC is a private, nonprofit corporation set up in a community to promote the community’s economic development. The CDCs work both with private lenders and the SBA, covering from 40 to 50 percent of the project cost, with a contribution of at least 10 percent equity by the business participating in the program.
The maximum amount of a loan available under the 504 Loan Program is $1 million, and up to $1.3 million in certain cases.
Eligibility Requirements for 504 Loans
To be eligible under the 504 Loan Program, a business must be operated for-profit and fall within SBA size standards.
A business qualifies as small under the 504 Loan Program if its tangible net worth does not exceed $7 million, and the average net income does not exceed $2.5 million after taxes for two prior years. Loans will not be made to businesses engaged in either investing in rental real estate or speculating in real estate.
Use of Proceeds for 504 Loans
The proceeds from 504 Loans must be used for fixed assets projects. These projects may include:
The proceeds may not be used for refinancing, working capital or inventory, or consolidating or repaying debt.
Loan Terms for 504 Loans
Maturity for the debentures may be 10 or 20 years. The interest rates on 504 Loans are fixed at the time of the debenture, and approximate the current market rate for five- and 10-year U.S. Treasury Issues, plus a small increment. Fees may be financed with the loan, and consist of about 3 percent of the debenture. Application for a 504 Loan is made directly to the SBA local intermediary lender.
There are approximately 270 CDCs nationwide, each covering a specific geographic area. Check the SBA local listings for a CDC in your area.
Collateral for 504 Loans
The assets being purchased with a 504 Loan are used as collateral. The principal owners of the business are also required to make a personal guaranty. For more information go to www.sba.gov/financing/sbaloan/cdc504.html.
The SBA Microloan Section 7(m) Program
Microloan Program provides very small loans to small businesses, startups, or newly established businesses. Under this Program, the SBA makes funds available to nonprofit community-based lenders (also called intermediaries) which then make loans to eligible borrowers.
The Microloan 7(m) Program provides short-term loans of up to a maximum of $35,000 to small businesses and not-for-profit child-care centers. The typical Microloan is about $10,500.
Eligibility Requirements for Microloans
Businesses that meet the size and type of business criteria for the 7(a) Loan Guaranty Program are also qualified to apply for a Microloan.
Most types of small for-profit businesses are eligible for this program. The form of the business, be it a corporation, partnership, or sole proprietorship, is not the determining factor. The size of the business is more of a factor. Nonprofit child-care centers, for example, are eligible to apply under this program.
Use of Proceeds for Microloans