Small Business Administration Resources and Services Program Recap

Thank you to Erika Pearson for a very informational presentation on the mission and resources of the Small Business Administration.  Created to help foster the growth of small businesses, the SBA offers a wide range of services, including indirect funding, Lender Match, counseling and training, and disaster assistance on rare occasions.

The SBA’s Learning Center, https://www.sba.gov/learning-center, offers 64 FREE training programs, including Buying a Business, Finding and Attracting Investors, and Savings Plans for Small Businesses.  You can also find free/low cost training from local partners at https://www.sba.gov/NJ.

The SBA also partners with many local and state organizations to provide a wealth of resources for small businesses and their owners.  Local partners affiliates include Small Business Development Center and Counselors to America’s Small Business (SCORE).

Perhaps the most important aspect of the SBA are their loans.  SBA loans are not direct loans to the recipient, but rather a guarantee for a traditional lender, such as a bank, where the SBA provides the funding to the lender, which is then extended to the borrower. For example, you apply to the lender, the SBA guarantees the lender of repaying the loan, then the lender approves the loan and gives you the money.

SBA loans help reduce the lender’s risk if the borrower has an aspect that is considered too risky, such as:

  • unstable cash flow or fear of repayment issues
  • insufficient collateral
  • seeking non-standard repayment terms
  • startups

Lenders generally look for the 5 “C”s:

  • Character
    • your background, education, and experience
    • Feasible Business Plan is critical
    • credit history, both personal and business
  • Capacity
    • Cash flow/business plan
    • can you repay?
    • will you show a profit?
    • is that profit sustainable?
  • Collateral
    • Tangible assets
    • property
    • equipment
    • Inventory
    • Collateral can be personal or business related
  • Capital
    • personal investment in the business
    • grants or gifts to fund business
    • how you are investing any profits
  • Conditions
    • Purpose of the loan
    • Amount requested
    • Length of loan
      • Working capital = 3 – 5 years
      • Furniture, fixtures, and equipment = useful life of the items
      • real estate = up to 25 years
    • Local economic climate of industry

In order to qualify for an SBA loan,  the borrower must be:

  • for profit
  • independently owned
  • legal resident
  • meet SBA size requirement

Disqualifiers include:

  • ineligible for financing
  • non-profit
  • money used to buy and sell real estate
  • pyramid sales
  • defaulted on federal government debt
  • probation, parole, or pending criminal charges

SBA Loans Programs

  • 7(a)
    • Maximum of $5 million
    • Fixed interest rate, but rate is negotiable
      • Less than 7 years = Prime + 2.25%
      • Greater than or equal to 7 years = Prime + 2.75%
    • Uses include working capital, inventory, line of credit, expansion/renovation, land, equipment/fixtures, or refinance debt for compelling reasons
    • Fees
      • Only on guaranteed portion of loan
      • Less than 1 year = 0.25%
      • Greater than or equal to 1 year
        • up to $150k = 2%
        • $150k – $700k = 3 %
        • $700k – $5m = 3. % + 3.75% per million
      • If in a HUB Zone, less than or equal to $150k = 0.06667%
      • Fees can be rolled into total loan and no prepayment penalty if less than 15 years
  • SBA Express
    • line of credit up to 10 years
    • Up to $350k = 50% guarantee by SBA
    • Rates
      • $50k or less = Prime + 6.5%
      • Greater than $50k = Prime + 4.5%
  • MICRO Loan
    • Maximum of $50k
    • No fees
    • Maximum of 6 year repayment
    • No real estate
    • Mandatory FREE pre and post loan counseling
  •  504 Loan
    • Primarily for real estate
    • Maximum of $5 million
    • Contribution breakdown
      • 50% of loan from the lender
      • 40% sold in secondary market
      • 10% put forward by borrower

If you have any questions about the SBA or any of the available loans, please reach out to Erika Pearson at 973-645-6160 or erika.pearson@sba.gov.  For a copy of the presentation, please visit https://www.njstatelib.org/wp-content/uploads/2019/04/SBA-Resources-and-Services.pdf.

About Andrew Dauphinee

Education and learning are passions of mine. Lifelong learning is a core part of who I am and I strive to pass that desire for information on to everyone I meet. As the Instruction and Outreach Librarian, it is my goal to provide quality, informative, and relevant programming to meet the diverse needs of our patrons. Please contact me regarding programming at adauphinee@njstatelib.org.