Tap into Small Business Administration Programs
The SBA helps entrepreneurs through a variety of loan programs.

By Barbara Caldwell

A major concern for today’s small business owners is access to capital and credit. The SBA’s loan guaranty programs provide a key source of financing for viable small business that have potential, but cannot qualify for loans from traditional sources.  Financing programs provided by SBA vary according to a borrower’s financial need.  SBA loans are made by private lenders and are guaranteed up to 85 percent. The 7(a) Loan Guaranty Program is the SBA’s primary loan program.

The eligibility requirements and credit criteria of the program are broad to accommodate a wide range of financing. To qualify for an SBA guaranty, a small business must meet the 7(a) criteria, and the lender must certify that it could not provide funding on reasonable terms except with an SBA guaranty. Since SBA does not do direct lending, the business submits a loan application to a lender for initial review. There are a number of special loan guaranty programs under the 7(a) program that address specific needs of start-up or established businesses.

Exporting
One of those is the Export Working Capital Program (EWCP), which supports export financing to small businesses when that financing is not otherwise available on reasonable terms. The program encourages lenders to offer export working capital loans by guaranteeing repayment of up to $1.5 million or 90 percent of a loan amount, whichever is less.
Designed to provide short-term working capital to exporters, the EWCP is a combined effort of the SBA and the Export-Import Bank. The proceeds of an EWCP loan must be used to finance the working capital needs associated with a single or multiple transactions of the exporter. You may not use proceeds to finance professional export marketing advice or services, foreign business travel, participation in trade shows or U.S. support staff overseas, except to the extent it relates directly to the transaction being financed. In addition, you cannot use proceeds to make payments to owners, to pay delinquent withholding taxes or to pay existing debt.
You must establish that the loan will significantly expand or develop an export market, is currently adversely affected by import competition, will upgrade equipment or facilities to improve competitive position, or must be able to provide a business plan that reasonably projects export sales sufficient to cover the loan.

Employee Trusts
The Qualified Employee Trusts Loan Program provides financial assistance to Employee Stock Ownership Plans. The employee trust must be part of a plan sponsored by the employer company and qualified under regulations set by either the Internal Revenue Service Code (as an Employee Stock Ownership Plan or ESOP) or the Department of Labor (the Employee Retirement Income Security Act or ERISA). Applicants covered by the ERISA regulations also must secure an exemption from the Department of Labor regulations prohibiting certain loan transactions.
    The SBA can assist qualified employee trusts that meet the requirements and conditions for an ESOP as prescribed in all applicable IRS, Treasury, and Department of Labor regulations. The small business must provide all the funds needed for collateral and to repay the loan. A qualified employee trust may re-lend proceeds to the employer by purchasing qualified employer securities, or purchase a controlling interest in the employer.

Short-Term Loans
CAPLines is the umbrella program under which the SBA helps small businesses meet their short-term and cyclical working-capital needs. A CAPLines loan, except the Small Asset-Based Line, can be for any dollar amount that does not exceed SBA's limit.

There are five short-term working-capital loan programs for small businesses under the CAPLines umbrella:
•    Seasonal Line. These are advances against anticipated inventory and accounts receivable to help during peak seasons when businesses experience seasonal sales fluctuations. They can be revolving or non-revolving.
•    Contract Line. These finance the direct labor and material cost associated with performing assignable contract(s). They can be revolving or non-revolving.
•    Builders Line. If you are a small general contractor or builder constructing or renovating commercial or residential buildings, this can finance direct labor and material costs. The building project serves as the collateral, and loans can be revolving or non-revolving.
•    Standard Asset-based Line. This is an asset-based revolving line of credit for businesses unable to meet credit standards associated with long-term credit. It provides financing for cyclical growth, recurring and/or short-term needs. Repayment comes from converting short-term assets into cash, which is remitted to the lender. Businesses continually draw from this line of credit, based on existing assets, and repay as their cash cycle dictates. This line generally is used by businesses that provide credit to other businesses.
•    Small Asset-Based Line. This is an asset-based revolving line of credit of up to $200,000. It operates like a standard asset-based line except that some of the stricter servicing requirements are waived, providing the business can consistently show repayment ability from cash flow for the full amount.

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.