Mainebiz

W W W. M A I N E B I Z . B I Z 31 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 and for loans over $150,000 the SBA gen- erally provides a guaranty of up to 7 %. e maximum dollar amount of a single 7(a) loan is $5 million and there is no minimum. e maximum dollar amount of the SBA share which can be provided to any one business (in- cluding affiliates) is $3.75 million. e actual interest rate for a 7(a) loan guaranteed by the SBA is negoti- ated between the applicant and lender but is subject to the SBA maximums. Both fixed and variable interest rate structures are available. Loans guaranteed by the SBA are assessed a guaranty fee. is fee is based on the loan's maturity and the dollar amount guaranteed, not the total dollar amount of the loan. e guaran- ty fee is initially paid by the lender and then passed on to the borrower at clos- ing. e funds the business needs to reimburse the lender can be included in the overall loan proceeds. e SBA's loan programs are gener- ally intended to encourage longer term small-business financing, but actual loan maturities are based on the ability to repay, the purpose of the loan proceeds and the useful life of the assets financed. Maturity generally ranges from 7 to 10 years for working capital, business start- ups, and business acquisition type loans, and up to 25 years if the purpose is to acquire real estate or fixed assets with a long term useful life. e structure of a basic 7(a) loan is that repayment has to be set up so the loan is paid in full by maturity. Over the term of the loan there can be additional payments or payment relaxation depending on what is hap- pening with the business. Balloon payments and call provisions are not allowed on any 7(a) term loan. For collateral, SBA expects every 7(a) loan to be secured first with the assets acquired with the loan proceeds and then with additional business and per- sonal assets, depending upon the loan amount and the way the lender requests their guaranty. However, SBA will not decline a request to guaranty a loan if the only unfavorable factor is insuf- ficient collateral, provided all available collateral is offered. When the lender says they will need an SBA guaranty, the applicant should be prepared for liens to be placed against all business assets. Personal guaranties are required from all the principal owners of the business. Liens on personal assets of the principals may also be required. Loans under $25,000 do not require collateral. Eligibility for a 7(a) loan is based on a number of different factors, ranging from size and nature of business to use of pro- ceeds and factors that are case specific. Size Eligibility An in-depth listing of standards can be found at www.sba.gov/size e first eligibility factor is size, as all loan recipients must be classified as "small" by the SBA. e size standards for all 7(a) loans are outlined below. SBA Size Standards have the fol- lowing general ranges: Manufacturing: from 500 to 1,500 employees; Wholesale trades: up to 100 employees; Services: an average of $2 million to $35.5 million in annual receipts; Retail trades: an average of $7 million to $35.5 million in average annual receipts Construction: an average of $7 million to $33.5 million in annual receipts; Agriculture, forestry, fishing and hunting: an average of $750,000 to $17.5 million in average annual receipts. ere is an alternate size standard for businesses that do not qualify under their industry size standards for SBA funding. at alternative is that the applicant business (plus af- filiates can't have a tangible net worth exceeding $15 million and average net income exceeding $5 million for the last two years). is new alternate makes more businesses eligible for SBA loans and applies to SBA non- disaster loan programs, namely its 7(a) business loans and certified develop- ment company programs. e second eligibility factor is based on the nature of the business and the process by which it generates income or the customers it serves. e SBA has general prohibitions against providing financial assistance to busi- nesses involved in such activities as lending, speculating, passive invest- ment, pyramid sales, loan packaging, presenting live performances of a prurient nature, businesses involved in gambling and any illegal activity. e SBA also cannot make loan guaranties to non-profit businesses, private clubs that limit member- ship on a basis other than capacity, businesses that promote a religion, businesses owned by individuals in- carcerated or on probation or parole,

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