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 SBA LOANS & GRANTS

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jamesbradley

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Posts : 58
Position Held : Int'l Corporate Transactional Attorney

20110625
PostSBA LOANS & GRANTS

[b]7(a) Loan Program[/b]




The 7(a) Loan Program includes financial help for businesses with special requirements. For example, funds are available for loans to businesses that handle exports to foreign countries, businesses that operate in rural areas, and for other very specific purposes.

[b]Special Purpose Loans Program[/b]




SBA offers several special purpose 7(a) loans to aid businesses that have been impacted by NAFTA, to provide financial assistance to Employee Stock Ownership Plans, and to help implement pollution control mechanisms.

[b]CAPLines[/b]


[b]What is CAPLines?[/b]


CAPLines is an umbrella loan program that helps small businesses meet their short-term and cyclical working-capital needs. It features five lines, each with specific regulations concerning the use of the loan proceeds.
[b]CAPLines Loan Types[/b]


[list]
[*]
[b]Seasonal Line[/b]. Borrowers must use the loan proceeds solely to finance the seasonal increases of accounts receivable and inventory (or in some cases associated increased labor costs); it can be revolving or non-revolving.
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[b]Contract Line[/b]. This line finances the direct labor and material cost associated with performing assignable contract(s); it can be revolving or non-revolving.
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[b]Builders Line[/b]. If you are a small general contractor or builder constructing or renovating commercial or residential buildings, this can finance direct labor and material costs. The building project serves as the collateral and loans can be revolving or non-revolving.
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[b]Standard Asset-Based Line[/b]. This is an asset-based revolving line of credit for businesses unable to meet credit standards associated with long-term credit. It provides financing for cyclical growth, recurring and/or short-term needs. Repayment comes from converting short-term assets into cash, which is used to pay back the lender. Your business can continually draw from this line of credit, based on existing assets, and repay as their cash cycle dictates. This line generally is used by businesses that provide credit to other businesses. Because these loans require continual servicing and monitoring of collateral, additional fees may be charged by the lender.
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[b]Small Asset-Based Line[/b]. This is an asset-based revolving line of credit of up to $200,000. It operates like a standard asset-based line except that some of the stricter servicing requirements are waived, as long as your business can consistently show repayment ability from cash flow for the full amount.
[/list]
[b]Loan Maturities[/b]


Each of the five lines of credit has a maturity of up to five (5) years. However, since each loan is tailored to an individual business’s needs, a shorter initial maturity may be established. CAPLines funds can be used as needed throughout the term of the loan to purchase short-term assets, as long as sufficient time is allowed to convert the assets into cash at maturity.
[b][b]Collateral[/b][/b]


Holders of at least 20 percent ownership in the business are generally required to guarantee the loan. Although inadequate collateral will not be the sole reason for denial of a loan request, the nature and value of that collateral does factor into the credit decision.

[b]Rural Business Loans[/b]


[b]Rural Lender Advantage[/b]


The Small/Rural Lender Advantage (S/RLA) initiative is designed to accommodate the unique loan processing needs of small community/rural-based lenders by simplifying and streamlining loan application process and procedures, particularly for smaller SBA loans. It is part of a broader SBA initiative to promote the economic development of local communities, particularly those facing the challenges of population loss, economic dislocation, and high unemployment.
[b]Key Features of the Initiative:[/b]


[list]
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A streamlined, simpler, and more user friendly 7(a) process for small loans ($350,000 or less)
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One page application (two sided) for very small loans with key, but limited additional information required for loans above $50,000
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SBA guarantees 85 percent of loans of $150,000 or less and 75 percent of loans greater than $150,000
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Loans centrally processed through SBA’s Standard 7(a) Loan Processing Center
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Expedited SBA processing with routine loans processed within 3-5 days
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Lenders can transmit applications via fax and eventually online
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Simplified SBA loan eligibility questionnaire to help small or occasional lenders meet SBA’s eligibility requirements
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Training on SBA program requirements from local SBA offices
[/list]
[b]B&I Guaranteed Loan Program[/b]


If your business is located in a rural community, you may qualify for special financing. The U.S. Department of Agriculture (USDA) currently maintains a [url=http://www.rurdev.usda.gov/rbs/busp/b%26i_gar.htm]Business and Industry (B&I) Guaranteed Loan Program[/url]. The USDA provides guarantees of up to 80 percent of a loan made by a commercial lender.
[b]Uses for a B&I Loan[/b]



Proceeds from such a loan may be used for:
[list]
[*]
Working capital
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Machinery and equipment
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Buildings and real estate
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Certain types of debt refinancing.
[/list]
The [url=http://www.rurdev.usda.gov/ne/gbifsht.pdf]B&I Loan Guarantee Program Fact Sheet[/url] provides all you need to know about obtaining one of these loans, including eligibility, loan terms and conditions, equity requirements, and interest rates. Like SBA loans, you need to go through your local bank or financial institution to apply for a B&I loan. If you have any questions about the B&I Loan Guarantee Program or other financial options, contact your state's [url=http://www.rurdev.usda.gov/recd_map.html]Rural Development Field Office[/url].

[b]Use of 7(a) Loan Proceeds[/b]


If you are awarded a 7(a) loan, the loan proceeds may be used to establish a new business or to assist in the acquisition, operation, or expansion of an existing business.
[b]Eligible Use of 7(a) Loan Proceeds Include (Non-Exclusive):[/b]


[list]
[*]
The purchase land or buildings, to cover new construction as well as expansion or conversion of existing facilities
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The purchase of equipment, machinery, furniture, fixtures, supplies, or materials
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Long-term working capital, including the payment of accounts payable and/or the purchase of inventory
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Short-term working capital needs, including seasonal financing, contract performance, construction financing and export production
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Financing against existing inventory and receivable [b]under special conditions[/b]
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The refinancing of existing business indebtedness that is not already structured with reasonable terms and conditions
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To purchase an existing business
[/list]
[b]SBA loans cannot be used for these purposes:[/b]


[list]
[*]
To refinance existing debt where the lender is in a position to sustain a loss and SBA would take over that loss through refinancing
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To effect a partial change of business ownership or a change that will not benefit the business
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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
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To repay delinquent state or federal withholding taxes or other funds that should be held in trust or escrow
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For a non-sound business purpose
[/list]
If you are unsure whether or not your anticipated use of funds is allowed, check with your SBA approved lender.

[b]Advantage Loan Initiatives[/b]


[b]Small Loan Advantage and Community Advantage 7(a) Loan Initiatives[/b]


SBA is committed to expanding access to capital for small businesses and entrepreneurs in underserved communities so that we can help drive economic growth and job creation. In line with that, SBA is rolling out two new initiatives on February 15, 2011, aimed at increasing the number of loans in these communities.
SBA and U.S. Department of Commerce studies have shown the importance of lower dollar loans to small business formation and growth in underserved communities. With that in mind, and building on the agency’s “Advantage” platform, both [b]Small Loan Advantage[/b] and [b]Community Advantage [/b]will offer a streamlined application process for SBA 7(a) loans up to $250,000.
[b]Small Loan Advantage[/b]


[list]
[*]
Small Loan Advantage is structured to encourage larger, existing SBA lenders to make lower-dollar loans, which often benefit businesses in underserved markets.
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[b]Maximum Loan Size:[/b] $250,000
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[b]Guarantee: [/b]85 percent for loans up to $150,000 and 75 percent for those greater than $150,000.
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[b]Approval Times:[/b] Most Small Loan Advantage loans will be approved in a matter of minutes through electronic submission (e-Tran). Non-delegated Small Loan Advantage loans will be approved within 5 to 10 days.
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[b]Paperwork: [/b]Small Loan Advantage features streamlined paperwork, with a two-page application for borrowers and lenders can use their own note and guaranty agreement.
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[b]Lender Requirements: [/b]Small Loan Advantage is open to financial institutions (currently 630 lenders) participating in SBA’s Preferred Lender Program (PLP).
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[b]Time Frame:[/b] [u]Lenders can begin submitting Small Loan Advantage loans on February 15, 2011.[/u]
[/list]

[b]Community Advantage[/b]


[list]
[*]
Community Advantage is a pilot initiative aimed at increasing the number of SBA 7(a) lenders who reach underserved communities, targeting community-based, mission-focused financial institutions which were previously not able to offer SBA loans.
[*]
[b]Maximum Loan Size:[/b] $250,000
[*]
[b]Guarantee:[/b] 85 percent for loans up to $150,000 and 75 percent for those greater than $150,000.
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[b]Approval Times:[/b] Most Community Advantage loans will be approved within 5 to 10 days.
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[b]Paperwork:[/b] Community Advantage features streamlined paperwork, with a two-page application for borrowers.
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[b]Lender Requirements:[/b] Community Advantage is open to mission-focused lenders, including Community Development Financial Institutions, SBA’s Certified Development Companies and SBA’s nonprofit microlending intermediaries. Community Advantage lenders will be expected to maintain at least 60 percent of their SBA loan portfolio in underserved markets.
[*]
[b]Time Frame:[/b] Community Advantage is a three-year pilot initiative. [u]SBA will begin taking applications from mission-focused lenders interested in Community Advantage on February 15, 2011, with their subsequent loan applications being accepted in the weeks that follow[/u].
[*]
[url=http://www.sba.gov/sites/default/files/files/CA%20-%20Participants%20Guide.pdf]Community Advantage Participant Guide[/url]
[*]
[url=http://www.sba.gov/content/community-advantage-approved-lenders]Community Advantage Approved Lenders[/url]
[/list]
[b]SBA’s Preferred Lender Program[/b]


[list]
[*]
SBA’s Preferred Lender Program (PLP) includes many of the nation’s largest lenders who do high volumes of SBA lending.
[*]
Preferred lenders can use a streamlined paperwork process with delegated authority to approve loans, which expedites the loan approval process for small business owners and delegates the final credit decisions to these lenders.
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Lending through the new Small Loan Advantage initiative is open to all of SBA’s PLP lenders for 7(a) loans of up to $250,000 with the regular 7(a) government guarantee.
[/list]
[b]Mission-Focused Lenders[/b]


[list]
[*]
The Community Advantage pilot loan program will allow community-based, mission-focused lenders to make SBA 7(a) loans of up to $250,000 with the regular 7(a) government guarantee.
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These potential new SBA lending partners include Community Development Financial Institutions, SBA’s Certified Development Companies and SBA’s nonprofit microlending intermediaries.
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Community Advantage leverages the experience these institutions already have in lending in economically-challenged markets, along with their management and technical assistance expertise to help make their borrowers successful.
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Community Advantage lenders will be expected to maintain at least 60 percent of their SBA loan portfolio in underserved markets, including loans to small businesses in, or that have more than 50 percent of their workforce residing in, low-to-moderate income (LMI) communities; in Empowerment Zones and Enterprise Communities; in HUBZones; start-ups (firms in business less than 2 years); and veteran-owned businesses and those that would be eligible for Patriot Express.
[*]
Following an initial evaluation period, mission-focused lenders participating in the Community Advantage pilot will be eligible to make Community Advantage loans under delegated authority.
[/list]
[b]CDC/504 Loan Program[/b]


[b]What is the CDC/504 Program?[/b]


The CDC/504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 Program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.
A Certified Development Company (CDC) is a private, nonprofit corporation which is set up to contribute to economic development within its community. CDCs work with SBA and private sector lenders to provide financing to small businesses, which accomplishes the goal of community economic development. Typically, a CDC/504 project includes:
[list]
[*]
A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost
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A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the project cost
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A contribution from the borrower of at least 10 percent of the project cost (equity)
[/list]
This type of setup means that 100% of the project cost is covered either by contribution of equity by the borrower, or the senior or junior lien.
[b]How 504 Loan Funds May Be Used[/b]


Proceeds from 504 loans must be used for fixed asset projects, such as:
[list]
[*]
The purchase of land, including existing buildings
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The purchase of improvements, including grading, street improvements, utilities, parking lots and landscaping
[*]
The construction of new facilities or modernizing, renovating or converting existing facilities
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The purchase of long-term machinery and equipment
[/list]
The 504 Program [b]cannot[/b] be used for working capital or inventory, consolidating or repaying debt, or refinancing.
[b]Eligibility[/b]


To be eligible for a CDC/504 loan, your business must be operated for profit and fall within the [url=http://www.sba.gov/content/determining-size-standards]size standards [/url]set by the SBA. Under the 504 Program, a business qualifies as small if it does not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. Loans cannot be made to businesses engaged in speculation or investment in rental real estate.
[b]Maximum Debenture (Total Amount of Loan)[/b]


The maximum SBA debenture is $1.5 million when meeting the job creation criteria or a community development goal. Generally, your business must create or retain one job for every $65,000 provided by the SBA, except for small manufacturers which have a $100,000 job creation or retention goal (see below).
The maximum SBA debenture is $2.0 million when meeting a public policy goal. These include:
[list]
[*]
Business district revitalization
[*]
Expansion of exports
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Expansion of minority business development
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Rural development
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Increasing productivity and competitiveness
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Restructuring because of federally mandated standards or policies
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Changes necessitated by federal budget cutbacks
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Expansion of small business concerns owned and controlled by veterans (especially service-disabled veterans)
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Expansion of small business concerns owned and controlled by women
[/list]
The maximum debenture for small manufacturers is $4.0 million. A small manufacturer is defined as a company that has its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS) and all of its production facilities located in the United States. To qualify for a $4.0 million 504 loan, your business must meet the definition of a small manufacturer and accomplish one of the following:
[list]
[*]
Create or retain at least one job per $100,000 guaranteed by the SBA [Section 501(d)(1) of the [url=http://thomas.loc.gov/cgi-bin/query/z?c111:S.3839:]Small Business Investment Act (SBI Act)[/url]]
[*]
Improve the economy of the locality or achieve one or more public policy goals [sections 501(d)(2) or (3) of the SBI Act]
[/list]
[b]Collateral[/b]


Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.
[b]Interest Rates and Fees[/b]


Interest rates on 504 loans are pegged to an increment above the current market rate for 5-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately 3 percent of the debenture and may be financed with the loan.
[b]Important Notification Below:[/b]


[b]504 Development Company Program Fee Eliminations:[/b]
For eligible loans approved through the Agency’s section 504 Development Company Program on or after February 17, 2009, The SBA will temporarily eliminate two program fees:
[list=1]
[*]
Third-Party Participation Fees (Small Business Investment Act Section 503(d)(2) fees codified at 13 CFR 120.972); and
[*]
CDC Processing Fees (13 CFR Section 120.971(a)(1) fees).
[/list]
Consistent with the Recovery Act’s temporary elimination of CDC Processing Fees, CDCs will no longer be allowed to collect deposits from small business applicants that would have gone towards payment of the CDC Processing Fee upon loan approval under 13 CFR 120.935. SBA will reimburse the CDCs for the waived CDC Processing Fees.
The SBA will pay CDCs two-thirds of the estimated CDC Processing Fee at the time of loan approval by the SBA or upon the issuance of a loan number for a loan approved under the Premier Certified Lenders Program. The remainder of the fee will be paid immediately following debenture funding and will be equal to 1.5% of net debenture proceeds for which a CDC does not collect the CDC Processing Fee, minus the amount previously paid. If a borrower has already paid a CDC for the fee, the CDC must reimburse the borrower from the SBA refund. The SBA will not permit CDCs to cancel loans approved by the SBA prior to February 17th, 2009 and resubmit them in order to qualify for the reimbursement of the processing fee. If the Participation Fee has already been paid to the SBA on an eligible loan, the SBA will refund the fee.
[b]For More Information[/b]


There are about 270 CDCs nationwide, each covering a specific geographic area. If you are interested in applying for a 504 loan, contact the CDC nearest you. You can get a listing from your local [url=http://www.sba.gov/about-offices-list/2]SBA District Office[/url].
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SBA LOANS & GRANTS :: Comments

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Re: SBA LOANS & GRANTS
Post on Thu Jun 30, 2011 3:18 am by cmanlarry
James,
This seems like it is a "no brainer". Why not utilize money that is available?
Larry
 

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