SBA 7(a) Loan Guaranty Program
Download SBA 7(a) Loan Guaranty Program brochure here (2.7MB PDF)
| Sample Project | ||
| John Smith is interested in establishing his own franchised business, which he has determined will cost $250,000 to start. However, he’s uncertain if he will meet the required conditions of conventional financing. Due to its start-up nature, his long-term banker, Jane Williams, suggests that John use the SBA 7(a) guaranty program. Here’s how it works: Business Development Corporation will finance 90% ($225,000) of the total project, leaving John with only a 10% ($25,000) down payment. Note that these percentages are subject to change. | ||
| Lender/Borrower | Project Costs |
Percentage of Project Costs |
| BDC | $225,000 | 90% |
| Equity | $25,000 | 10% |
| Total Project | $250,000 | 100% |
Use of Proceeds | Term | Interest Rates | Guaranty and Other Fees | Eligibility
Maximum Loan: $5,000,000
Maximum SBA Guaranty: $3,750,000
Use of Proceeds (top of page)
- Expansion or renovation
- Construction of new facilities
- Purchase land or buildings
- Purchase equipment, fixtures, leasehold improvements
- Working capital
- Refinance debt for compelling reasons
- Inventory expansion
Term (top of page)
- Generally working capital is 5-7 years
- Machinery and equipment not to exceed useful life
- 20 year maximum on real estate and construction
Interest Rates (top of page)
- Variable
- For loans under 7 years, the maximum is Wall Street Journal Prime Rate + 2.25%
- For loans 7 years or more, the maximum is Wall Street Journal Prime Rate + 2.75%
- All rates are variable and adjusted monthly as the Wall Street Journal Prime Rate Changes
- Prime Rate as of October 2011 is 3.25%
Guaranty and Other Fees (top of page)
- The SBA Guaranty Fee is based on the amount guaranteed
- For loans up to $150M, the guaranty fee is 2% of the amount guaranteed
- For loans larger than $150M, the guaranty fee is:
- 3% of the guaranteed amount up to and including loans for $700,000
- 3.5% of the guaranteed amount for loans greater than $700,000
- When the guaranteed portion of a loan is over $1 million, an additional 0.25% is added to the guaranteed portion that is in excess of $1 million
- The borrower pays the guaranty fee, closing costs and other direct costs (such as environmental reports and appraisals)
- Certain costs and fees can be financed
- BDC requires a nonrefundable Packaging Fee of $500
Eligibility (top of page)
- Business operated for profit (no non-profit entities)
- Meets SBA size standard which is based on sales volume or number of employees
and varies by industry
( i.e. Manufacturers up to 1,500 employees, Retail and Service $3,000,000 annual sales, Wholesale 100 employees and Contracting and Construction $15,000,000 in sales) - Owner/Operator shows good character
- Management expertise and commitment
- Demonstrates ability to repay
- Business may not be involved in speculation or investment