Loans To Small Businesses- The SBA Business Loan

by: Neal Coxworth

The SBA has many loans to small businesses. One of the most popular SBA business loan programs is the SBA CDC/504 program. The other is the SBA 7(a) program. Businesses who are interested in applying at their local bank or non-bank lender need to know as much as possible about what will be required prior to applying so they can be prepared. Below you will see the different requirements and information regarding this small business loan.

Loan Program- SBA CDC/504

Target Businesses/Borrowers For this Program-This program is designed for those small businesses that are already established and operating at a profit. The business cannot exceed a "tangible" net worth of $7.5mm to be eligible for this program and cannot exceed a net income of $2.5mm for the most recent two years. The purpose of this loan is long-term economic development within a community. The program is geared toward those businesses with "brick and mortar" operations with long term, fixed rate funding. CDC's are certified development companies that work within a specific, designated community to help provide business financing along with the SBA and SBA approved lenders within that community.

Use of Funds- The SBA governs how the proceeds from any loan disbursed through this program. Below are some of these requirements.

Purchase of land or improvements to existing structures including buildings, landscaping, street improvements, etc

Construction of new facilities or improvement of existing facilities related directly to the business.

Purchase of long-term machinery used in the business

Maximum Loan Amounts- The maximum loan amounts can vary from $1.5mm to $4.0mm. Generally speaking, loan amounts rise if a project meets specific public policy goals such as community revitalization, job creation or community redevelopment of a business district, minority ownership, etc. See the SBA site for full details. Interest rates are pegged to a specified amount above US treasuries.

Credit Criteria- A personal guarantee by all principals with all supporting documentation is mandatory. (see above under 'Types of Documentation Needed') Additionally, the SBA will place a lien on the project being financed as collateral. This lien remains in force until the loan is paid.