Financing Your Business With an SBA Loan
SBA programs help entrepreneurs secure financing that lenders might not otherwise approve.

By Barbara Caldwell

Congress created the U.S. Small Business Administration (SBA) in 1953 to help America’s entrepreneurs form successful small enterprises. Today, SBA offices in every state, the District of Columbia, the Virgin Islands and Puerto Rico offer financing, training and advocacy for small firms. The agency also works with thousands of lending, educational and training institutions nationwide.

The SBA enables its lending partners to provide financing to small businesses when funding is otherwise unavailable on reasonable terms. The SBA does this by guaranteeing major portions of loans made to small businesses.

Contrary to popular belief, the agency does not currently have funding for direct loans, nor does it provide grants or low-interest rate loans for business start-up or expansion.

The eligibility requirements and credit criteria of the program are very broad in order to accommodate a wide range of financing needs.

The SBA Guaranty
When a small business applies to a lending partner for a loan, the lender reviews the application and decides if it merits a loan on its own or if it requires additional support in the form of an SBA guaranty. SBA backing on the loan can then be requested by the lender. In guaranteeing the loan, the SBA assures the lender that, in the event the borrower does not repay the loan, the government will reimburse the lending partner for a portion of its loss.

By providing this guaranty, the SBA is able to help tens of thousands of small businesses every year get financing they would not otherwise obtain.
To qualify for an SBA guaranty, a small business must meet the SBA’s eligibility criteria, and the lender must certify that it could not provide funding on reasonable terms without an SBA guaranty.

The SBA can guarantee as much as 85 percent on loans of up to $150,000 and 75 percent on loans of more than $150,000. In most cases, the maximum guaranty is $1 million. There are higher loan limits or guarantees for international trade, defense-dependent small firms affected by defense reductions, and Certified Development Company loans.

Types of Programs
The 7(a) Loan Guaranty Program is one of the SBA’s primary lending programs and is utilized frequently in the Kansas City metropolitan area. It provides loans to small businesses unable to secure financing on reasonable terms through normal lending channels. The program operates through private-sector lenders that provide loans that are, in turn, guaranteed by the SBA.

Other SBA loan programs include the following:

• Low Documentation Loans (LowDoc), which offers a simple, one-page SBA application form and rapid approvals for loans up to $150,000.
• CAPLines Loans, which help small businesses meet their short-term and cyclical working capital needs. There are five programs under the CAPLines Loan program.
• Export Working Capital Program (EWCP), developed for exporters seeking short-term working capital for pre- and post-export transactions.
• Microloan Program, which provides small loans up to $35,000 that can be used for business purposes such as working capital, machinery and equipment purchase, fixtures and leasehold improvements.
• 504 Loan Program, which provides long-term, fixed assets (e.g., land, building, machinery/equipment) financing through Certified Development Companies in both Kansas and Missouri.
• Small Business Pre-qualification Loan Program (Pre-Qual), which uses local intermediaries to work with small businesses owned by women, minorities, veterans and exporters, plus rural small businesses and those in certain designated industries and geographical areas, in preparing loan applications.
• SBAExpress Loan Program, which offers a more streamlined review to special designated lenders. It allows the lender to use their own forms and processes to approve loans guaranteed by the SBA and at a lower 50 percent guaranty rate for qualified buyers up to $2 million.

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.

Barbara Caldwell is the public information officer for the Kansas City District Office of the U.S. Small Business Administration. Information on SBA loan programs, as well as the management counseling and training services offered by the Agency, is also available from the Kansas City District Office of the SBA, located at 323 W. 8th St., Ste. 501,  Kansas City, MO. Or you may call (816) 374-6708.