NFIB

Expand Your Business with SBA Loans
08/ 15/ 2003

by Vicki Gerson

Many business owners are unaware that the Small Business Administration (SBA) is one resource for small businesses looking to lock in the funding they need to grow. The SBA offers business loans, loan guarantees and disaster loans worth more than $45 billion, in addition to a venture capital portfolio of $13 billion.

Certified development companies facilitate SBA loans through their regional offices. For example in Riverside County, Calif., CDC Small Business Finance Corp. helps small businesses secure the best financing available through its programs and network of more than 50 lenders.

"Many small businesses have the perception that SBA loans are hard to apply for or that their business wouldn't be eligible, but we've found that most small businesses meet the eligibility requirements, and they usually come away wondering why they had so many reservations in the first place," says Kurt Chilcott, president of CDC. "More small businesses should see what the SBA loan program has to offer for them."

Without all the ingredients -- just like your favorite recipe -- your loan processing won't work. Include business financial statements for the last three years, projections, interim financial statements dated within the last 45 days, business debt schedule, federal tax returns for the last three years, articles and by-laws of business or partnership agreement and the like.

Chilcott says many small businesses have questions about SBA 504 financing. Here are the most frequently asked questions he hears.

How much can I borrow?

The SBA 504 loan can finance commercial projects of any size. For instance, a loan guarantee can be arranged by the SBA as a first trust deed lender and then issues a second trust deed for up to $1.3 million or 40 percent of the total project. Borrowers only need to put 10 percent down.

What is the interest rate?

The interest rate is shown on the note and the amortization schedule is included in your package. The interest rate stated on the note does not include the SBA or development company servicing fees. Although the interest rate on the note is fixed, payments are lowered every five years as the fees are adjusted. The loan is pooled with all of the other 504 loans funded in the same month and sold in the form of debentures. The debentures are priced based on current market conditions. Rates typically follow the trends of treasury rates (usually rates on the 504 debentures are higher than treasury rates).

What can I use the money for?

Loan proceeds may be used to purchase or remodel an existing industrial or commercial building or to construct a new facility.

What are the terms of the loan?

The term of the bank's first trust deed loan can be variable or a fixed rate. CDC, for example, and the bank work to develop loan terms that make sense for the business' needs. Debenture is a fixed rate loan with 10 or 20 year maturity.

What do I need for collateral?

The project assets being financed are used as collateral.

Do I have to personally guarantee the loan?

Yes. Personal guarantees of principal owners (owning 20 percent or more of the business) are required.

How much does it cost to apply?

An SBA 504 loan should cost you nothing to apply. Check with a certified development company in your region authorized by the SBA.

How long does it take to complete the process?

Usually, loan officers can provide you with loan pre-qualification in just 72 hours. The complete procedure, from application submission to disbursement of funds, takes approximately 30 to 90 days, depending on the complexity of the loan.

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