Understanding How the SBA 7(a) Loan Program Can Help Your Small Business
The SBA 7(a) loan program is the program that you would likely use to fund your small business venture if you are seeking assistance through an SBA-backed loan. The loans under the 7(a) loan program were created to make small business financing deals more attractive to commercial lenders. The SBA 7(a) loan program assists small businesses that would not ordinarily have a chance of financing by guaranteeing up to 85% of the loan. An SBA guaranty does not exonerate you from repayment. It provides assurance to the lender that if you default on the loan, the SBA will pay up to the amount guaranteed.
Four primary types of 7(a) loans include:
- Express Program
- Export Loan Programs
- Rural Lender Advantage Program
- Special Purpose Loans Program
Express Program Loans
The Express Program loans expedite the loan process for lenders and borrowers. There are three loans under this program:
- SBA Express: Loans under the SBA Express are processed within 36 hours of application.
- Community Express: These loans primarily seek to provide assistance to under-served communities as defined by the SBA’s Historically Underutilized Business Zones (HUBZones) and communities covered under the Community Reinvestment Act (CRA).
- Patriot Express: Patriot Express loans are designed for businesses owned by veterans or members of the military community. If you are veteran or are part of the military community and own 51% of a business, you might be able to acquire funding under this program.
Export Loan Programs
If you have an export business or are thinking of starting one, you would be encouraged to know that the SBA Export Loan Programs are made specifically for export businesses. The SBA has three major programs to help small businesses develop or expand export businesses:
- Export Express: This program fast-tracks loans for small business exporters. The SBA will back up to $250,000 to appeal to commercial lenders who would otherwise not finance to a small business against export orders. The SBA guarantees up to 90% of these loans
- Export Working Capital Program (EWCP): The EWCP is similar to the Export Express with the exception that these loans are used to help small businesses secure the necessary capital needed to support sales they have generated.
- International Trade Program: If your export business has been adversely affected by competition from imports, the SBA will guarantee up to $1.75 million to help put your small business in a more competitive position.
Rural Lender Advantage Program
This program is part of an initiative to promote development in areas that are economically challenged. Under this program, the SBA relaxes the lenders guidelines and procedures to encourage lenders to finance small businesses in challenged areas.
Special Purpose Loan Program
These loans are put together to help businesses negatively affected by the North American Free Trade Agreement (NAFTA), to provide assistance to Employee Stock Ownership Plans (ESOP) and to support building a facility to help control pollution.
- The Community Adjustment & Investment Cap (CAIP): The CAIP loan program allows businesses in regions adversely affected by NAFTA by reducing the borrower’s cost and increasing loan availability.
- CAPLines: If your business has a cyclical, recurring or short-term need, then you might qualify for finances under one of the lines available in the CAPLine program.
- Seasonal Line: supports seasonal increases of accounts receivables and inventory
- Contract Line: supports finance labor and material cost associated with a specific contract
- Builders Line: allows small general contractors or builders to finance labor and material costs associated with a commercial or residential building project
- Standard Asset-Based Line: provides support for businesses unable to meet standards for longer-term credit. It provides a revolving credit line that the business must pay back from short-term assets.
- Small Asset-Based Line: similar to the standard line except but is less restrictive, providing the borrower has a good history of paying back previous loans in full.
-
- Employee Trusts: Loans under this program allow you to fund your ESOP as long as the trust is employer plan sponsored and meets either the IRS or the Department of Labor laws.
- Pollution Control: Small business owners who are building a facility to help minimize, eliminate or control pollution can get a loan to plan, design or install the facility.
The SBA has wonderful programs to increase your chances of getting the funding you need for your business. Just remember, the SBA does not fund the programs; they just guarantee them. Among other guidelines, you must be credit worthy. You must also have a viable business plan. Many aspiring entrepreneurs become frustrated when looking for funding. You will not find funding through SBA without having collateral, great credit and a viable plan. For more information regarding the government-funded programs, visit www.sba.gov.
About the Author
Jowanna Parris-Daley owns and operates jowanna inc™, a small business consulting company that offers business plan writing, website design and technology consulting services for startup businesses.
