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SBA Loan Programs print this article

The SBA provides access to capital through a variety of programs.

Credit Program: 7(a) Loan

Borrower: Can borrow up to $2 million, depending on the type of 7(a) loan, for most any business purpose, including working capital.
Lender: Commercial bank, credit union, or financial service company.
How it Works: Bank typically makes loan for 7 to 10 years; collateral is usually required. For standard 7(a) loans, the top interest rate ranges from 2.25 percent over prime to 4.75 percent over prime.
SBA's Role: SBA approves the loan and guarantees up to 85 percent of its value. With the easier-to-apply-for Express loans, the guaranty is 50 percent and the bank approves the loan.
Where It Stands: Still the SBA's bread-and-butter loan program, but last year the total dollars loaned fell nearly 4 percent to $13.7 billion.

 

Credit Program: 504 Loan

Borrower: A manufacturer can borrow up to $4 million for fixed assets like real estate or equipment. Firms in other industries can borrow up to $2 million.
Lender: Commercial bank and a nonprofit Certified Development Company.
How it Works: Typically, the borrower makes a 10 percent down payment.The lenders set interest rates separately. The bond market determines development company's rate.
SBA's Role: SBA approves and guarantees all of the development company's portion of the debt, which is packaged with other loans and sold as a bond on Wall Street.
Where It Stands: The 504 is the SBA's fastest-growing loan program. The Bush administration has proposed eliminating up-front fees for borrowers.

 

Credit Program: Microloan

Borrower: Very small businesses, often in-home and held by low income or minority owners, can borrow up to $35,000 for general business purposes.
Lender: Nonprofit or government-affiliated community development organization, or Native American tribal agency.
How it Works: Organization makes loan of up to six years, typically at about 9.5 percent interest, and provides technical assistance to borrower.
SBA's Role: SBA provides a large direct loan to the community organization, which in turn reloans the funds to its clients. The intermediary is expected to repay the SBA even if its clients default.
Where It Stands: After years of trying to kill the microloan program, the Bush administration has relented, proposing instead to make it zero-subsidy.

 

Credit Program: Venture Capital

Borrower: Can borrow or exchange equity stake for early-stage financing.
Lender: Small Business Investment Company, a private, for - profit investment fund.
How it Works: SBICs leverage private investment with government-borrowed money. Debenture SBICs usually loan the money to firms. Participating security SBICS exchange money for equity.
SBA's Role: Money lended to SBICs is pooled and sold on the capital market; the SBA guarantees payment to those investors. The SBA receives a profit share for participating security SBICs.
Where It Stands: Worried about defaults, the SBA no longer licenses new participating security SBICs, by its own admission removing "the primary method by which the SBA can provide access for small businesses to equity capital."



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