There are a wide variety of SBA Loan Programs. The
most common loans used for business acquisitions are
7 (a) and 504 Loans.
At
this time, 7 (a) loans are more difficult to obtain
for Business Acquisitions. Loans
are
subject to
stricter collateral requirements and goodwill
financing restrictions.
Relevant
experience from the Borrower is a key
factor.
Programs and terms are subject to change.
Ask us about SBA qualified Lenders to meet
your financing requirements.
The
following is a summary of the key changes made to
the new version of the SOP Effective 10/1/09:
*
If a transaction includes $500,000 or less of
intangible assets (including, but not
limited to, goodwill, client/customer lists,
patents, copyrights, trademarks and
agreements not to compete), a lender may process the
loan using its delegated
authority.
* If
the application includes more than $500,000 of
intangible assets and the
borrower and/or seller have contributed a total of
at least 25% equity, the loan
also may be processed using a Lender's delegated
authority. (Seller equity is
defined as seller take-back financing that is on
full standby (principal and
interest) for a minimum of 2 years.)
* If
the loan amount includes more than $500,000 in
intangible assets and the
borrower and/or seller are not providing at least
25% equity, then the
application must be sent to the Standard 7(a) Loan
Guaranty Processing Center
in Citrus Heights for review and approval by SBA.
* Business
valuations must be requested by and prepared for
lender.
7(a) Loans:
The primary SBA loan
program helps small businesses that might not be
eligible for loans through normal lending channels.
Money can be used for a variety of business
purposes. The loans are made through commercial
lenders and partially backed by an SBA guaranty. The
SBA does not loan the money, so the particular
lenders are performing underwriting per their own
criteria, which may vary widely lender to lender.
CDC 504 Loans:
Made through a certified
development company, a 504 loan provides long-term,
fixed-rate financing for real estate, machinery or
equipment. Typically, the loan involves a
private-sector lender with a senior lien, a
certified development company and at least 10
percent equity from the borrower.
A list of CDCs is on the
SBA Web site.
See
Specific SBA Vs Conventional Comparison
| |
SBA
7(a) Term Loan |
SBA
LowDoc |
SBAExpress |
SBA
504 Term Loan |
| Eligibility |
For-profit businesses
Small business qualification by SBA guidelines-subject
to SOP changes and lender guidelines
Size varies by industry type |
Same as 7(a) Term Loan |
Same as 7(a) Term Loan |
Existing, for-profit businesses
Net worth $6MM or less, net profits after
taxes $2MM or less
1 job created for every $50,000 in SBA loan
funds |
| Loan Size |
SBA loan guarantee can not
exceed $1,500,000
Loan ceiling of $2,000,000 |
$150,000 |
From $100,000 to $250,000 |
From $150,000 to $3,000,000
($2,000,000 for special purpose real estate)
Maximum SBA loan $1,500,000 (Up to $4,000,000
for small manufacturers) |
| Use of
Proceeds |
Land
Buildings
Machinery & Equipment
Purchase Business
Inventory
Working Capital |
Same as 7(a) Term Loan |
Same as 7(a) Term Loan |
Land
Buildings (new purchase, new construction
or renovation)
Machinery & Equipment (minimum useful
life of 10 years) |
| Financing |
Provided by chosen lender, and
SBA provides an 85% guarantee to the
lender on loan amounts of $150,000 or
less, 75% guarantee on loan amounts of
$150,000 or more.
Usual 20%
borrower injection; may be 10% if seller will
subsidize down-payment with seller financing.
|
SBA provides an 85% guarantee to
Lender |
Provided by Lender , and SBA
provides a 50% guarantee |
50% financed by Lender
40% SBA loan through Certified Development Co.
10% borrower injection (increased injection
required on new businesses or special-purpose
real estate) |
| Collateral |
SBA requires Lender to take a
secured interest in business assets and/or a
mortgage on real estate.
Collateral
requirements vary with SBA SOP changes and
lender's own underwriting requirements.
|
Same as 7(a) Term Loan |
Same as 7(a) Term Loan |
Lender holds first mortgage on
real estate, and/or secured interest in
equipment and machinery. SBA holds second
mortgage on real estate, or second secured
interest in equipment and machinery |
| Underwriting
Requirements |
Personal guaranties by all
owners of 20% or more
Adequate business collateral, or personal
assets securing personal guaranty example:
mortgage on home
Hazard Insurance
Often Life
Insurance |
Same as 7(a) Term Loan |
Same as 7(a) Term Loan |
Personal guaranties by all
owners of 20% or more
Life insurance on business principals in
amount of SBA loan
Hazard Insurance |
| Loan Terms |
Working Capital up to 7
years
Equipment up to 10 years (or useful
life)
Real Estate - up to 25 years |
Same as 7(a) Term Loan |
Revolving line of credit
up to 3 years
Term loan up to 5 years |
Lender's loan
minimum 10 years on Real Estate; 7 years on
Machinery & Equipment
SBA/CDC loan 20 years |
| Interest
Rates |
Rates can be fixed or
variable
NY Prime + 2.25% - term less than 7 years
NY Prime + 2.75% term greater than 7 years |
Same as 7(a) Term Loan |
NY Prime + 6.5% for loans of
$50,000 or less
NY Prime + 4.5% for loans over $50,000 |
Lender's loan
negotiated
rate between borrower and Bank (fixed or
variable)
SBA/CDC loan below market fixed
interest payment , loan rate set when
debenture is sold |
