How SBA Loan program works, introduction

Small Business Administration (SBA) loan program was created to provide business owners with choices beyond conventional loans that do not offer small business owners access to the capital they need. In addition SBA developed number of financial programs with more favorable terms that a conventional financing.

SBA's Role
SBA does not lend money to small businesses. Loans are given by lenders that have partnership agreements with SBA, and SBA eliminates some of the risk to the lending partners and guarantees that these loans will be repaid.

The SBA loan is actually a commercial loan, structured according to SBA requirements with an SBA guaranty.

SBA programs such as debt financing, surety bonds, and equity financing specifically designed to meet financing needs of small businesses owners.

In order to get an SBA loan small business has to prove that it has no access to other financing on reasonable terms.

Eligible uses of proceeds include, but not limited to:

• Purchase land or buildings, new construction as well as expansion or conversion of existing facilities.
• Acquisition of furniture, equipment, machinery, fixtures, supplies, or materials.
• Financing of long-term working capital, including the payment of accounts payable and/or for the purchase of inventory.
• Refinancing of existing business debt that is not already structured with reasonable terms and conditions.
• Financing of short-term working capital needs, including seasonal financing, contract performance, construction financing, export production, and for financing against existing inventory and receivables.
• Purchase an existing business.

There are some restrictions on SBA loans. Ineligible purposes:

• To refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing.
• To effect a partial change of business ownership or a change that will not benefit the business
• To permit the reimbursement of funds owed to any owner, including any equity injection or injection of capital for the business's continuance until the loan supported by SBA is disbursed.
• To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow;
• For a non-sound business purpose.

SBA Requirements

• Operate as a for-profit company.
• Do business  in the United States
• Meet SBA Size Standards
• Be an eligible type of business
• Use proceeds for an approved purpose: establish a new business or to assist in the operation, acquisition or expansion of an existing business.
• Not have funds available from other sources. Both business and personal financial resources are reviewed as part of the eligibility criteria. If these resources are found to be excessive, the business will be required to use those resources in lieu of part or all of the requested loan proceeds.
• Ability to repay the loan on time.
• Good character. SBA will obtain a "Statement of Personal History" for the principals.
• Management expertise and commitment necessary for success.
• Feasible business plan

Yury Iofe, MBA

Universal Business Structured Solution

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