The ABCs of SBA Loans
Simply put, SBA Loans are federally guaranteed commercial loans. The Small Business Administration (SBA) is an independent agency of the Federal Government that assists small businesses in many ways, including setting guidelines for SBA loans and backing them with a guarantee. An SBA loan is made through a commercial bank, such as Webster Bank, and guaranteed by the SBA. The guarantee helps reduce the bank’s risk and enables it to provide financing that might otherwise not be available. So, you can apply for an SBA loan by applying through Webster for a commercial loan that is structured according to SBA guidelines.
Categories of SBA Loans:
- 7(a) Loans and SBAExpress Loans are used to establish a new business or to assist in the operation, acquisition or expansion of an existing business.
- Patriot Express Loans are targeted for veterans, active duty service members eligible to retire, Reservists and National Guard members, as well as spouses of any of these service types (plus widowed spouses of any service member who died while in service or of a service-connected disability)
- Export Express Loans are targeted for companies that export
- 504 Loans are designed to assist small businesses in acquiring fixed assets such as real estate and equipment, and promote economic development in our communities.
Compared to a conventional loan, SBA Loans offer:
• Lower down payments in many cases
• Longer terms and amortization periods
• Closing costs can be financed on an SBA loan in many cases
SBA Loans Can Help Businesses Grow Strong in Many Ways
SBA Loans can be used to finance:
• Working capital – 7(a) and SBAExpress only
• Inventory – 7(a) and SBAExpress only
• Line of credit – SBAExpress only
• Real estate purchase
• Fixed assets/machinery/equipment/furniture/fixtures
• Business purchase
• Business start-up
• Buyout of a business partner
• Refinance debt (10% improvement, current on debt, having a business debt schedule is critical)
New SBA Guidelines Give More Credit to More Small Businesses
In 2010, the SBA made some major changes to their lending guidelines:
• Increased the standard used to determine the size of companies eligible for SBA financing to include small businesses with:
• Less than $15 million in maximum tangible net worth, and
• A two-year average net income after Federal income tax of $5 million
• Permanently increased the loan limits of 7(a) loans from $2 million to $5 million
• Permanently increased the loan limits of SBA 504 loans from $2 million to $5.5 million
For the last three years, Webster Bank has been Connecticut’s #1 SBA lender and an SBA preferred lender throughout our market and in CT, MA, RI and NY.
Are There Restrictions on the Uses of SBA Loans?
Yes, there are certain restrictions for the use of SBA loans. SBA loans cannot be used to finance:
• Existing debt where the lender is in a position to sustain a loss and the SBA would take over that loss through refinancing
• A partial change of business ownership or a change that will not benefit the business
• The reimbursements of funds owed to any owner, including any equity injection, or injection of capital for the purposes of business continuance, until the loan supported by the SBA is disbursed
• Repayment of delinquent state or federal withholding taxes or other funds that should be held in trust or escrow
• An unsound business purpose
Have you ever used the SBA program to start or grow a business? What advice do you have for other small business owners?