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V O L . X X I N O. X I V 30 FA C T BO O K / D O I N G B U S I N E S S I N M A I N E B U S I N E S S R E S O U R C E S 7(a) loan program e 7(a) Loan program is the SBA's primary business loan program. It is the agency's most frequently used non-disaster fi nancial assistance pro- gram because of its fl exibility in loan structure, variety of uses for the loan proceeds and availability. e program has broad eligibility requirements and credit criteria to accommodate a wide range of fi nancing needs. e business loans that SBA guar- antees do not come from the SBA, but rather from banks and other approved lenders. e loans are funded by these organizations and they make the deci- sions to approve or deny the appli- cants' request for fi nancial assistance. e guaranty that SBA provides the lender reduces the lender's risk of borrower non-payment because the guaranty assures the lender that if the borrower defaults, the lender can request that SBA pay the debt rather than the borrower. SBA only guaran- tees a portion or percentage of every loan not the whole debt, so in the event of default the lender will only get par- tially repaid by SBA. is means that if the borrower can't make the payments and defaults, the lender can recover the guaranteed portion of the defaulted debt from the SBA. e borrower is still obligated for the full amount. To qualify for an SBA guaranteed loan, a small business must meet the lender's criteria and the 7(a) program requirements. One of those require- ments is that the lender must certify that it would not provide this loan un- der the proposed terms and conditions without an SBA guaranty. If the SBA is going to provide a lender with a guar- anty, the applicant must be eligible and creditworthy and the loan structured under conditions acceptable to the SBA. SBA only guarantees a portion of any particular 7(a) loan so each loan will have an SBA share and an unguaran- teed portion which gives the lender a certain amount of exposure and risk on each loan. e percentage of guaranty depends on either the dollar amount or the program the lender uses to obtain its guaranty. For loans of $150,000 or less the SBA generally guarantees as much as 85% 1-800-564-0111 | eatonpeabody.com Augusta | Bangor | Brunswick | Ellsworth | Portland Business Law Commercial Finance Creditor and Debtor Rights Economic Development Employee Benefits Environmental & Land Use Estate Planning & Wealth Transfer Immigration Intellectual Property Labor & Employment Legislative & Government Relations Litigation / Dispute Resolution Municipal Law & Finance Natural Resources & Timberlands Real Estate Tax Alternative Energy Aquaculture Artists & Cultural Organizations Banking & Financial Institutions Business Startups Commercial & Residental Developers Construction Education Healthcare Hospitality Land Conservation Municipal, Quasimunicipal, & County Nonprofit & Charitable Organizations Professional Services Small Business Timberlands & Forest Products Utilities Practice Areas Industries Statewide Practice. Local Service. Finding capital T he SBA has a variety of loan programs that are distinguished by their diff erent uses of the loan proceeds, their dollar amounts and the require- ments placed on the actual lenders. e three principal players in most of these programs are the applicant small business, the lender and the SBA. e SBA does not actually provide the loan, but rather it guarantees a portion of the loan provided by a lender (with the exception of microloans). e business applies directly to a lender. Generally, an application includes a business plan that explains what resources will be needed to accomplish the de- sired business purpose including the associated costs, the applicants' contribution, planned uses for the loan proceeds, a listing of the assets that will secure the loan (collateral), a history of the business and explanation of how the business generates income. Most important, the borrower provides an explanation of a repayment plan. e lender will analyze the application to see if it meets their criteria and make a determination if they will need an SBA guaranty in order to provide the loan. SBA will look to the lender to do much, if not all, of the analysis before it pro- vides its guaranty to the lender's proposed loan. e SBA's business loan guaranty programs provide a key source of fi nancing for viable small businesses that have real potential but cannot qualify for credit on reasonable terms by themselves. Generally, SBA loans must meet the following criteria: Every loan must be for a sound business purpose There must be suffi cient invested equity in the business so it can operate on a sound fi nancial basis There must be a potential for long-term success The owners must be of good character and reputation All loans must be so sound as to reasonably assure repayment

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