SBA Loans

Question 1

What are the two types of SBA loans and what are the characteristics of each?

Answer 1

1. 7A

2. 504

Question 2

7A

Answer 2

• One loan: guaranteed up to 75%
• Up to 90% financing; additional collateral may be required.
• 25 year - can offer a fixed rate for the full term on turnkey real estate
• PPP: First 3 years – 5%, 3%, 1%
• Fees: SBA Guaranty Fee + Packaging Fee

Question 3

504

Answer 3

Two loans: one with Bank, one with SBA

• Up to 90% financing; no additional collateral required
• 25 year loan
• PPP: Bank – Varies. SBA – 10 years; 10% declining
• Fees: Bank, Bridge and SBA

Question 4

What businesses and industries are ineligible for SBA loans and why?

Answer 4

What businesses and industries are ineligible for SBA loans and why?
Non-Profits or Business with religious affiliation
Businesses that restrict patronage
Businesses where gaming revenue exceeds 1/3 of total revenue
Real Estate Investment Firms, when the real property will be held for investment purposes.
Firms involved in lending activities (banks, factors, leasing, etc.)
Pyramid Sales Plans
Businesses engaged in illegal activities, loan packaging, speculation, multi sales distribution, gambling, investment or lending, or owner is on parole.

Question 5

What are the most commonly encountered SBA eligibility factors?

Answer 5

What are the most commonly encountered SBA eligibility factors?
Debt Refinance for buildings or Business Debts
Loan must be in place for 2 years before refinance under SBA 504.
For SBA 7a Loan must be on unreasonable terms and refinance must provide a cash flow savings to the borrower of at least 10% annually
Ownership must be in place for at least 6 months. If Principal ownership has changed on the business, it may be ineligible if done within 6 months.
Seller Carry Back Loans on business acquisitions must be in place for at least 2 years before eligible for refinance under SBA.
Husband and Wife can both be required to guarantee if their combined ownership equals 20% or more.
Credit Elsewhere test must be met
There are many other eligibility factors that involve SBA requests and the specifics surrounding that request. In order to properly vet these loans early on for eligibility it is very important to get an SBA Expert involved to determine if this is a request that is viable and eligible for SBA.
The SOP for SBA is updated Annually, and these rules are always subject to change.
The Credit Elsewhere test must be met, meaning: the Business and its owners must demonstrate that an SBA loan is the only option for financing outside of conventional bank loan standards. This could be for multiple different reasons such as:
Terms for loan are needed using SBA Program that are outside of the bank’s conventional parameters
Cash flow is tight, or not present for all years analyzed
Projections are required for loan approval
Lack of collateral to fully secure request
Liquidity is tight, and a lower down payment is needed
Other factors may exist on the request and the owners to make meet this requirement