Article: Brian E. Hill & Dee Power


The Small Business Library

February 11, 2001

The Quest For Capital:   SBA Loans

SBA loans are loans to small businesses, usually between $50,000 to $750,000. The Small Business Administration, SBA, guarantees the payment of the loan to the lending entity. The loan is not made by the SBA to the business. The agency has no funds for direct lending or grants. A small business is defined for the most part as a business having less than $6 million in net worth and income of less than $2 million. A small business is also defined by the number of employees dependent upon the industry.

Additionally some types of businesses don't qualify at all. Businesses of a speculative nature, or that provide financing themselves or public communication companies that are considered to sway public opinion such as publishing, television, and radio.

The 7(a) Loan Guaranty Program is one of SBA's primary lending programs. It provides loans to small businesses unable to secure financing through normal lending channels. Go to your local lender, and select that lender carefully. Banks are not the only provider of SBA Loans, in some areas more SBA loans are provided by commercial financing entities like GE Capital than banks.

Most lenders are familiar with SBA loan programs, so interested applicants should contact their local lender for further information and assistance in the SBA loan application process. Information on SBA loan programs, as well as the management counseling and training services offered by the Agency, is also available from the local SBA office.

What does the lender of an SBA loan consider?

The cash flow of the business to repay the loan is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner's equity contribution are also important considerations. All owners of twenty percent (20%) or more are required to personally guarantee SBA loans.

Types of SBA Loans:

  • 7(a) Loan
    It provides loans to small businesses unable to secure financing on reasonable terms through normal lending channels.
  • Specialized 7(a): LowDoc
    Designed to increase the availability of funds under $100,000 and streamline/expedite the loan review process.
  • Specialized 7(a): FA$TRAK
    Designed to increase the capital available to businesses seeking loans up to $100,000 but is currently offered as a pilot with a limited number of lenders.
  • Specialized 7(a): CAP Lines
    An umbrella program to help small businesses meet their short-term and cyclical working capital needs with five separate programs.
  • Specialized 7(a): International Trade
    For businesses preparing to engage in or is already engaged in international trade, or that are adversely affected by competition from imports.
  • Specialized 7(a): Export Working Capital
    Designed to provide short-term working capital to exporters in a combined effort of the SBA and the Export-Import Bank.
  • Specialized 7(a): Pollution Control
    Designed to provide loan guarantees to eligible small business for the financing of the planning, design, or installation of a pollution control facility.
  • Specialized 7(a): DELTADefense Loan and Technical Assistance
    is a joint SBA and Department of Defense effort to provide financial and technical assistance to defense-dependent small firms adversely affected by cutbacks in defense.
  • Specialized 7(a): Minority and Women's
    A pilot program that uses intermediaries to assist prospective minority and women borrowers in developing viable loan application packages and securing loans.
  • Microloan Program
    This program works through intermediaries to provide small loans from as little as $100 up to $25,000.
  • Certified Development Company (504 Loan) Program
    This program, commonly referred to as the 504 program, makes long term loans available for purchasing land, buildings, and machinery and equipment, and for building, modernizing or renovating existing facilities and sites.
And just a reminder, the SBA does not provide grants.

Dee Power and Brian E. Hill are co-authors of "Inside Secrets To Venture Capital" to be published by John Wiley & Sons, March 2001 available nationwide and at www.amazon.com. Dee and Brian can be reached through their web site, www.capital-connection.com, The Entrepreneur's Resource For Finance.