SBA 7a Loan

Nations Loan charges no application fees on an SBA 7a Loans. Nations Loan has an affiliation with a national direct SBA lender. Nations Loan will underwrite the loan and submit the application to the lender for approval. Nations Loan will process loans that will range from $750,000-$5,000,000.

General Underwriting Guidelines:

The 7(a) guaranteed loan program is SBA’s primary lending program. The borrower applies to a lending institution, not the SBA. The lender applies to the SBA for a loan guaranty. The SBA can process the lender’s request through a variety of methods. Guarantees are up to $4,500,000 of each loan made by participant lenders. These loans typically range from $25,000 to $5 million and are repaid in monthly installments. They can be used for a variety of business purposes including working capital, equipment acquisition, debt refinance, change of ownership, and real estate purchases. Maturities depend on the use of loan proceeds but typically range from 5 to 25 years.

General Credit Requirements

SBA and private lenders consider the following criteria to test credit worthiness.

  • Repayment Ability: You must show that you can meet business expenses, owners draw, and loan payments from the earnings of the business. This is usually demonstrated through historical performance and/or thoroughly documented cash flow projections.

(2) Management: You must show ability to operate the business successfully. For a start-up, you should have experience in the type of business you propose to start, as well as some significant work experience at a management level.

(3) Equity: The owners must have enough of their own money at stake in the business:
(a) For a New Business (or when buying a business) you should have approximately one dollar of cash or business assets for each three dollars of the loan.
(b) For an Established Firm, the after-the-loan business balance sheet should show no more than four dollars of total debt for each dollar of net worth (i.e., a 4:1 Debt/Equity ratio – may vary by industry).

Definition of Equity:

You may be required to pledge nonbusiness assets (often a second mortgage on your personal residence may be required for collateral). However, this should not be confused with equity in the sense it is used here. As used here, the equity is the owner’s net investment in the business.

(4) Credit History: Your personal and company credit histories will be reviewed. Prudent lenders prefer applicants who have a history of meeting their obligations. If your credit record has blemishes but there are extenuating circumstances, prepare to explain fully.

 

Guarantee Portion – Under the 7(a) guaranteed loan program SBA typically guarantees from 50% to 85% of an eligible bank loan up to a maximum guaranty amount of $3,750,000. The exact percentage of the guaranty depends on a variety of factors such as size of loan and which SBA program is to be used. This will be worked out between the SBA and your bank.

Amounts – The maximum loan amount is $5 million. The total SBA guarantee for any one borrower may not exceed $3,750,000.

Maturity – Up to 25 years for real estate acquisition or construction. Most other SBA loans are limited to 10 years. Working capital loans are generally limited to seven years.

Interest Rates – SBA sets a maximum rate on its guaranteed loans. The rate may be either fixed or variable, as determined between the lender and applicant. The rate is pegged to the prime rate as published daily in the Wall Street Journal. The formulas are:

  • –  Prime + 2.25% for loans > $50,000, maturity < 7 years.
  • –  Prime + 2.75% for loans > $50,000, maturity 7 years or more.

Loan Fees:

Fees for loan maturity exceeding 12 months:
2% of the guaranteed portion for loans up to $150,000
3% of the guaranteed portion for loans above $150,000 up to $700,000 – 3.5% of the guaranteed portion for loans above $700,000

Fees for loan maturity of 12 months or less: – .25% (1/4 of 1%) of the guaranteed portion

Prepayment Penalties – Only on loans with terms of 15 years or longer. Decreasing prepayment penalties apply during the first three years of the loan.

Collateral – SBA’s policy has two parts:
(1) When a loan guaranty is approved, we expect all available company assets to be offered as collateral. If company assets are insufficient to fully secure the loan, liens on personal assets may be required. Often, this means a lien on residential real estate.

Size Standards – Applicants must meet the SBA definition of small business. Size limits vary by specific industry (NAICS code). www.sba.gov/size for more information.

Information provided by the SBA.