SMALL BUSINESS ADMINISTRATIONFINANCIAL ASSISTANCE PROGRAMS Kansas City District Office 816-426-4900
Financial Assistance Programs • SBA primarily works through 3 different LOAN PROGRAMS to provide access to capital for small businesses: • 7(a) Loan Guarantees • 504 Fixed Asset Program • Microloans in selected areas • SBA does NOT have grants available to start or expand businesses. • SBA loans are only made to for-profit businesses • Credit decision by lender is made on a case-by-case basis.
Financial Assistance Programs • The 7(a) loan guaranty program works with a lender of your choice to potentially finance business transactions of the start-up of new businesses, the expansion of existing businesses or facilitate the buy-sell of existing businesses. The SBA loan programs are only available for business purposes.
Financial Assistance Programs The participating lender may consider using SBA guarantee program for small business clients with these sub-programs: • Standard 7(a) Loan Program • Special Purpose 7(a) Loans: Capline, EWCP, IT • SBAExpress (SX) • Community Express (CX) • Patriot Express (PX) Not all lenders are designated to work with all of these loan programs. Please click on this link: http://www.sba.gov/localresources/district/mo/kansas/Financing/index.html for the current listing of special designation lenders that operate in the Kansas City District Office area.
Financial Assistance Programs • Standard and Special Purpose 7(a) Loan Guaranty Program • Made by commercial lenders – not a direct loan program • SBA guaranties 75- 85% of the loan amount • No minimum loan amount however maximum loan amount can be up to $2,000,000 • All 7(a) program requirements: • Good credit history • demonstrated record for success (for an existing business) • good character • sufficient funds to operate the business at a profit • collateralize the loan as fully as possible
Financial Assistance Programs • Flexible Maturities: • Up to 10 Years for working capital • Up to 25 years for fixed assets • real estate, construction, equipment • Interest Rates: • Negotiated between borrower and lender • Typically cannot exceed prime rate plus 2.75%, except: • Loans of $50,000 and less may be higher • SBAExpress loans may also be higher
Financial Assistance Programs 7(a) Program Guaranty Fees: SBA charges the guaranty fee to all participating lenders and lenders will generally pass on the fee directly to the SBA borrower. http://www.sba.gov/services/financialassistance/basics/sbarole/SERV_7A_FEES.html for any fee changes
CAPLINES Loans Used to meet short-term and cyclical working capital needs Can be a one project type deal or can be on a revolving basis Three Types: Seasonal, Contract, Small Builder Also, Two Types of Asset Based Loans Are Available: Standard Asset Based Small Asset Based (All Capline Loans are part of the 7(a) Loan Guaranty Program) Financial Assistance Programs Special Purpose Programs
Financial Assistance Programs Special Purpose Programs Export Working Capital Loan – Loans under the 7(a) Program with up to a 90% Guaranty • Pre-Export and Post-Export Transactions • Paid back from proceeds of the export sales • No Import loan proceeds available International Trade Loan • Used for producing goods or services within the U.S. to export elsewhere • Can help firms adversely affected by import competition
Financial Assistance Programs • 7(a) SBAExpress – Loans Up to $350,000 • 50% guaranty to lender • Streamlined-Lender uses its own documentation • can be used for a variety of purposes, including funding working capital lines of credit • Most commonly used for existing business expansion • Over 65% of SBA lending is now done thru this SBAExpress program!
Financial Assistance Programs 7(a) Community Express – Loans Up to $250,000 • 75-85% guaranty to lender • Streamlined-Lender uses its own documentation • can be used for a variety of purposes, including funding working capital lines of credit • Lender pays for technical assistance to a pre-approved technical assistance provider for the SBA borrower to improve business operation • Limited local use by lending community
Financial Assistance Programs • 7(a) Patriot Express – Loans up to $500,000 • with 75% - 85% guaranty • Newest version of SBA Lending • Started June 28, 2007 • Streamlined Pilot program extends to December 31, 2010 • Created to Serve Special Customers • Honorably-discharged Veterans • Service-Disabled Veterans • Service Members Leaving Active Duty eligible for Transitional Assistance Program (TAP) • Reservists and National Guard Members • Current Spouses of any of the above • Widowed Spouse of a Service Member or Veteran who died during service, or of a service-connect disability
Financial Assistance Programs 504 Fixed Asset Loan Long-Term financing for fixed assets like buildings & equipment (not rolling stock). Up to $1.5 million in SBA-backed debentures – more for public policy goals and manufacturers Loan must generally create or retain one job for every $50,000 of debenture proceeds provided by the SBA. Available throughout Kansas and Missouri from CDCs in specific areas (link: http://www.sba.gov/localresources/district/mo/kansas/financing/index.html)
Financial Assistance Programs • MICROLOAN - $35,000 or less • Pool of Funds available thru microloan intermediary • RMI (Jefferson City) - statewide in MO 573-635-0136 • Go Connection – KC metro area plus the Kansas Counties of Douglas & Shawnee, 816-235-6146
Financial Assistance Programs • SURETY BOND GUARANTEES • Not a Business Loan Program • SBA guarantees bid, payment and performance bonds for construction, service, and supply contracts up to $2,000,000 on behalf of small businesses. • Guarantee proves incentives for surety companies to bond small business that would otherwise be unable to obtain bonding. • Web address: http://www.sba.gov/OSG
HOW DOES AN APPLICANT APPROACH A LENDER ABOUT SBA LOANS? • Make advance appointment with commercial officer that handles business loans. • Be prepared with a written business plan. It should include identification of total cost of project with a breakout of what $$ are expected to be borrowed and what $$ are expected to be injected by business owner!
WHAT SHOULD AN APPLICANT EXPECT FROM A LENDER? • A commitment from the lender to review the business plan by a specified date or an up-front explanation of why that lender does not want to do that type of loan. • Expect the lender to ask for applicant’s personal credit information so they can authorize a credit report and possibly a business credit report.
TIPS FOR FINANCIAL PREPARATION • FIRST be prepared- Do have business plan completed before seeking a business loan! • Understand the loan process and consider how your application will be compared to industry peers. • You need to establish time frame for decision making that is realistic and decide if lender can meet those needs.
NEGOTIATION ITEMS & LENDER DISCLOSURE • Interest rate • Term of loan • Who will personally guarantee loan • What fees will be charged • Time frame range in expecting an answer “YES or NO” and time frame to expect on disbursement of funds • Other services lender can provide
WHY DOES A LENDER SAY “YES”? • Likes balance of credit factors – strengths outweigh weaknesses • Lender’s institution has favorable experience with that industry • Your business loan application credit risk fits in with lender’s target portfolio • Lending officer is willing and able to be your advocate in loan committee
WHY DOES A LENDER SAY “NO”? • Weaknesses of individual deal outweigh strengths in areas such as: • Sales volume is optimistic or expenses are underestimated or industry in turmoil • Management has no direct experience • Lender risk too high in loan amount compared to applicant’s injection – Debt/Equity • Credit or character history is marginal or poor • Collateral offered doesn’t offset other risks • Lender’s institution has unfavorable experience with that industry
TECHNICAL ASSISTANCE:LOCAL ADVICE ON FINANCING See other training modules……. • www.sba.gov • SCORE – Counselors to America’s Small Business • Small Business Development Center (SBDC) • Womens Business Center (WBC) • Procurement Assistance Center (PAC) • Business Information Center (BIC) • www.kcsourcelink.com
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