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V O L . X X I I N O. X V 36 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 financial assistance pro- gram because of its flexibility 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 financing 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 financial 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 under the proposed terms and condi- tions without an SBA guaranty. If the SBA is going to provide a lender with a guaranty, the applicant must be eligible and creditworthy and the loan structured under conditions accept- able to the SBA. SBA only guarantees a portion of any particular 7(a) loan so each loan will have an SBA share and an unguaranteed 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% and for loans over $150,000 the SBA generally 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 guaranty fee is initially paid by the lender and then passed on to the borrower at closing. e funds the business needs to reimburse the lender can be included in the overall loan proceeds. e SBA's loan programs are gen- erally 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 busi- ness 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 personal assets, depend- ing upon the loan amount and the way the lender requests their guar- anty. However, SBA will not decline a request to guaranty a loan if the Finding capital T he SBA has a variety of loan programs that are distinguished by their different 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 financing 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 sufficient invested equity in the business so it can operate on a sound financial 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 VISIT MAINECO.ORG TO LEARN MORE. Here, you can have it all. 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