Mainebiz

W W W. M A I N E B I Z . B I Z 37 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 only unfavorable factor is insufficient collateral, provided all available col- lateral is offered. When the lender says they will need an SBA guaranty, the applicant should be prepared for liens to be placed against all busi- ness assets. Personal guaranties are required from all the principal own- ers 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, rang- ing from size and nature of business to use of proceeds 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 assis- tance to businesses involved in such activities as lending, speculating, pas- sive investment, pyramid sales, loan packaging, presenting live perfor- mances of a prurient nature, busi- nesses 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 incarcerated or on probation or pa- role, municipalities, and situations where the business or its owners previously failed to repay a federal loan or federally assisted financ- ing, or are delinquent on existing federal debt. e third eligibility factor is use of proceeds. A Basic 7(a) loan can provide proceeds to purchase ma- chinery, equipment, fixtures, supplies and to make improvements to land and/or buildings that will be occu- pied by the subject applicant business. Proceeds can also be used to expand or renovate facilities; acquire ma- chinery, equipment, furniture, fixtures and leasehold improvements; acquire businesses; start businesses; for work- ing capital; acquire land or build a location; or to refinance debt under certain conditions. SBA 7(a) loan proceeds cannot be used for making investments, provid- ing funds to any of the owners of the business except for ordinary compen- sation for actual services provided; for floor-plan financing; or for a purpose that does not benefit the business. e fourth factor involves a va- riety of requirements such as SBA's credit elsewhere test where the per- sonal resources of the owners need to be checked to see if they can make a contribution before getting a loan guaranteed by the SBA. It also in- cludes the SBA's anti-discrimination rules and limitations on lending to agricultural enterprises because there are other agencies of the Federal government with programs to fund such businesses. Special purpose 7(a) loan programs e 7(a) loan program is the most flexible of the SBA's lending pro- grams. Over time, the SBA has de- veloped several variations of the basic 7(a) loan in order to address specific financing needs for particular types of small businesses or to give the lender greater flexibility with the loan's structure. e general distinguishing feature between these loan types is their use of proceeds. ese programs allow the proceeds to be used in ways that are not otherwise permitted in a basic 7(a) loan. SBAExpress e SBAExpress loan or line of credit is a flexible smaller loan up to $350,000 that a designated lender can provide to its borrower using mostly their own forms, analysis and pro- cedures to process, structure, service, and disburse this SBA-guaranteed loan. When structured as a term loan the proceeds and maturity are the same as a basic 7(a) loan. When structured as a revolving line of credit, the requirements for the payment of interest and principal are at the discretion of the lender and maturity can't exceed seven years. CAPLines e CAPLines program for loans up to $5 million is designed to help small businesses meet their short-term and cyclical working capital needs. e programs can be used to finance sea- sonal working capital needs; finance the direct costs of performing certain construction, service and supply contracts, subcontracts, or purchase orders; finance the direct cost associ- ated with commercial and residen- tial construction; or provide general working capital lines of credit. e maturity can be for up to 10 years ex- cept for the builders' CAPLine, which is limited to 36 months after the first structure is completed. Guaranty percentages are the same as for a basic 7(a) loan. There are four distinct short term loan programs under the CAPLine umbrella: 1. The Contract Loan Program is used to finance the cost associated with contracts, subcontracts, or purchase orders. Proceeds can be disbursed before the work begins. If used for one contract or subcon- tract, it is generally not revolving; if used for more than one contract or subcontract at a time, it can be revolving. e loan maturity is usu- ally based on the length of the con- tract, but no more than 10 years. Contract payments are generally sent directly to the lender but al- ternative structures are available. 2. The Seasonal Line of Credit Program is used to support buildup of inventory, accounts receivable or labor and materials above normal usage for seasonal inventory. e business must have been in business for a period of 12 months and must have a definite established seasonal pattern. e loan may be used over again after a "clean-up" period of 30 days to finance activity for a new season. ese loans also may have a matu- rity of up to five years. e business may not have another seasonal line of credit outstanding but may have other lines for non-seasonal work- ing capital needs. 3. The Builders Line Program pro- vides financing for small contrac- tors or developers to construct or rehabilitate residential or com- mercial property. Loan maturity is generally three years but can be ex- tended up to five years, if necessary, to facilitate sale of the property. Proceeds are used solely for direct expenses of acquisition, immedi- ate construction and/or significant rehabilitation of the residential or commercial structures. e pur- chase of the land can be included if it does not exceed 20% of the loan proceeds. Up to 5% of the proceeds can be used for physical improve- ments that benefit the property. 4. The Working Capital Line Program is a revolving line of credit (up to $5 million) that pro- vides short term working capital. ese lines are generally used by businesses that provide credit to their customers, or whose principle asset is inventory. Disbursements are generally based on the size of a borrower's accounts receiv- able and/or inventory. Repayment comes from the collection of accounts receivable or sale of inventory. e specific structure is negotiated with the lender. ere may be extra servicing and moni- toring of the collateral for which the lender can charge up to 2% annually to the borrower. Company loan program (504 loans) e 504 Loan program is an eco- nomic development program that supports American small business growth and helps communities

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