SBA 7(A) | Southern Georgia Regional Commission

SBA7(A)

The SBA 7(A) Loan program provides financing for small businesses to acquire fixed assets, increase working capital, and restructure existing debt. The purpose of this loan program is to provide flexible financing to small businesses for their development and growth when conventional financing is not available. The bank makes the loan with a percentage of it guaranteed by SBA.

About The SBA7(A) Program

Use of Proceeds:

• Land and building acquisition
•Machinery and equipment
•Inventory Working capital
•Building renovation
•Leasehold improvements
•Accounts receivable
•Refinancing – New loan must reduce loan payment by 20% on long term debt and debt must have been kept current to be eligible for refinancing
•Fixed assets--the borrower must be the user of those assets
•SBA guaranty fee and SGRC packaging fee

Loan Amount

$3,750,000 is the maximum guaranty. $5,000,000 - maximum gross loan amount.

Type of Business

Eligible businesses include most operating for-profit businesses. However, certain size standards set by SBA do apply. Manufacturing and wholesale businesses must employ less than 500 persons. Retail and service businesses may not have gross annual sales that exceed $3.5 million unless otherwise specified in the SIC code. Ineligible businesses include: passive income and real estate companies, developer/landlord deals, financial institutions, media such as newspapers and radio stations and not-for-profit businesses.

The SBA7(A) Loan Program Procedure...

Approval and Interim Financing:

The loan application (prepared by the SGRC staff) and the participating bank's agreement to fund the loan are submitted to the SBA for approval. Upon approval, SBA issues an "Authorization and Loan Agreement", a written commitment to guaranty a portion of the loan request based on the terms and conditions contained within this document.

Closing, Funding, and Servicing

The bank's attorney according to the terms and conditions outlined in the "Authorization and Loan Agreement" closes the guaranteed loan. The bank shall provide the funds, and SBA will provide a guaranty to the bank.

Servicing:

It is the bank's responsibility to provide loan servicing on the SBA guaranteed loan.

Liquidation:

Should a 7a loan need to be liquidated, the bank would receive 75% of the outstanding loan balance and 25% of liquidated assets. SBA requires the bank liquidate the assets

The SBA7(A) Loan Program Features...

Guaranty Amount:

All loans may receive a maximum guaranty of 75%, not to exceed $3,750,000, including 504 loans.

Benefits:

•The SBA guaranty encourages the bank to make the loan.
•Small businesses obtain loans that are not available otherwise.
•The bank is provided a marketable security guaranteed by the federal government.
•The SGRC prepares the loan application and obtains the SBA guaranty for the bank.

Paperwork:

SBA7(A) Loan Program...

Requirements:

Personal guaranty of persons or entities having 20% ownership in the business is required. The cash or equity injection of the Small Business Concern (SBC) varies from 10% to 50%, depending on the collateral pledged to secure the loan, the viability of the project, and the profitability of the company.
Hazard insurance equal to the market value or the replacement cost of the fixed assets pledged is required. Life insurance assignments on principals equal to the loan amount may be required.

Fees That May Be Financed:

Packaging fee of approximately 1% of the total loan paid to the SGRC.
Bank servicing fee on construction loan is permitted. No other bank fees are eligible for financing.
Legal fees and closing fees.

SBA Guaranty Fee - Flat fee based on loan amount:

If loan is $150,000 or less, the guaranty fee is 2% of guaranteed portion. Lender may retain 25 percent of fee.
If loan is more than $150,001, but up to and including $700,000, the guaranty fee is 3% of the guaranteed portion.
If the total loan is more than $700,001, the guaranty fee is 3.5% of the guaranteed portion.

On-going Bank fee:

Fee is payable monthly to SBA by the bank and is .550 of the guaranteed portion of the outstanding balance of the loan. (600,000 x .0050/360 x 30 = $272.50)