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Building South Carolina One Business At A Time

SBA 7(a) Loan Guaranty Program

Sample Project

John Smith is interested in starting his own franchised business, which he has determined will cost $250,000 to start.  But 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: $2,000,000
Maximum SBA Guaranty: $1,500,000

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)

  • Depends on ability to repay
  • 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)

  • Negotiable
  • For loans under 7 years, the maximum is Wall Street Journal Prime Rate + 2.25%
    Prime Rate as of May 9, 2008 is 5.00%.
  • For loans 7 years or more, the maximum is Wall Street Journal Prime Rate + 2.75%
    Prime Rate as of May 9, 2008 is 5.00%.
  • All rates are variable and adjusted monthly as the Wall Street Journal Prime Rate Changes

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 of more than $700,000 (when the guaranteed portion of a loan is over $1 million, an additional 0.25% is added to that 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
  • Cost and fees can be financed
  • BDC requires that a nonrefundable Application Fee of $250 for loan requests up to $250,000 and $500 for loan requests greater than $250,000 accompany your application for financing.

Eligibility (top of page)

  • Business operated for profit
  • 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)
  • Shows good character
  • Management expertise and commitment
  • Shows ability to repay
  • May not be involved in speculation or investment