August 28, 2014
CRF's Vice President of Business Lending, Brian Burke, combines 25 years of small business lending experience with a passion for helping underserved small businesses access the capital they need to grow and create jobs. In the first of two Q & As with Brian, we discuss choosing the right SBA loan and how to begin the loan process.
Q. How do I know what SBA program is best for my business?
A. Generally speaking, lower revenue companies will have lower capitalization needs including debt capital. For companies up to $1 million in annual revenues, the SBA small 7(a) loan program up to $350,000 or the SBA Express loan program (loans and lines of credit up to $350,000) should generally meet the borrower's needs.
Higher revenue companies may require larger loan amounts, up to $5 million and the use of proceeds will likely dictate the particular program. SBA 7(a), also known as the SBA guarantee loan program is a flexible product that can support business acquisitions, plant and equipment, and permanent working capital. There is also a little known program called Caplines that is a derivation of 7(a), which supports asset based lending in the form of revolving lines of credit.
For larger fixed asset purchases, the SBA 504 program may be the best fit as it offers long-term fixed-rate financing for owner-occupied commercial real estate and long-term plant financing needs. The use of proceeds and the loan size will help determine the best product fit.
Q. Are there SBA programs that are only available for specific types of uses?
A Yes; the SBA 504 is strictly limited to commercial real estate and very long-term plant and equipment financing. No working capital, leasehold equipment or short-term equipment financing is allowed in this program. The SBA guaranteed loan or 7(a) is the most flexible - multiple uses and terms can be combined and blended to formulate a well-structured loan that works for both borrower and lender.
Q. For a smaller business owner interested in exploring SBA programs, what is the best way to start the process?
A. If the business utilizes a business bank (that is a bank that understands and supports small business and not strictly the consumers that own the business), then that is often the best place to start. However many banks do not offer SBA loan products consistently so be sure to inquire about their familiarity and comfort with government guaranteed loan products.
If they are not active, then a non-bank SBA lender like Community Reinvestment Fund, USA or other mission focused/community development lenders might be the best choice. Many banks refer loans that they are unable to do to CRF, especially those that create a lot of community impact such as businesses located in a low income community or minority, women or veteran-owned businesses. Learn more about CRF's SBA program
For very small business loans (less than $50,000) - a micro lender (often local non-profit community development lender), might offer the best terms and technical assistance to support that business at that stage.
Q. If I am a larger small business, with revenues above $1 million, would you give the same advice?
A. For larger small businesses and middle market companies, the bank that holds your accounts is a natural place to inquire first, along with advice from trusted advisors such as the company CPA (financial and tax advisor) or business consultant. Your best bet is to look for an active SBA Preferred Lender (PLP). Under PLP, SBA delegates the final credit decision and most servicing and liquidation authority and responsibility to carefully selected lenders and the process for securing the loan should be faster.
In part 2 of the Basics of SBA Loans, Brian will talk about the documentation needed for SBA loans as well as some of the most important things you should keep in mind when considering SBA programs.
Posted by: CRFUSA