The U.S. Small Business Administration's 7a program provides loan guarantees to approved banks and some other approved lenders.  In the event of default by the borrowing Small Business Concern (SBC), the SBA is willing to reimburse up to 85% of the loss that the lender would otherwise sustain.  Consequently, lenders may be willing to accept a greater credit risk and grant more favorable terms than they might otherwise.  SBA also has a revolving line of credit loan guaranty program but very few banks are willing to participate.  SBCs that are poor credit risks or fail to clearly articulate their ability to repay the loan will probably be rejected.

Loan Amount

$100,000 to $2 million.  Although the SBA encourages lenders to make loans as low as $10,000, the paperwork is too extensive and the bank's set up costs too high to make small loans cost effective.  However, smaller banks are often motivated to consider lower loan amounts conventionally and through SBA for existing customers with creditworthy proposals.  Some large banks consider making smaller Express Loans to existing businesses with a strong history of cash flow.  Two banks make Community Express Loans to under-served borrowers in the $5,000 to $50,000 range and may accept tainted credit histories and no collateral.

Suitable Borrowers

For-profit SBCs with good credit (business and owners) and a history of sufficient cash flow.  Some small community banks make loans to start-up SBCs and require more cash assets, collateral and experienced ownership.  SBA defines the maximum size of the business by industry and is based upon ether gross revenues or number of employees.  Most SBCs qualify.  A few industry types are excluded from SBA programs.

Purpose of the Loan

To expand, acquire or start a small business.  Weaker proposals normally require substantial collateral, such as real estate while stronger proposals are sometimes accepted with less substantial collateral, such as fixtures and equipment.

Loan to Collateral Value or Cost

Up to 90% of cost or value is possible for well-established SBCs with quality collateral.  70-80% more typical for most start-ups.  Lenders have other critical ratios related to cash flow, liquidity and assets that limit the loan amount available.  Credit requirements, collateral prerequisites, cash flow minimums and loan amounts vary among SBA approved lenders.  Most have requirements that are more severe than the minimum acceptable to SBA.  Be sure to understand what your lender requires before you make application. Please go to www.sba.gov/financing/index.html for details on SBA's financing programs.