Tapping the SBA, Part 2: Beyond the Early Stages
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Many small business owners know and have taken advantage of the U.S. Small Business Administration’s (SBA’s) most popular small business program, the 7(a) Loan Program, but the organization serves more than just startups. Established firms can also leverage SBA offerings.

Many small business owners know and have taken advantage of the U.S. Small Business Administration’s (SBA’s) most popular small business program, the SBA 7(a) Loan Program, but the organization serves more than just startups. Established firms can also leverage SBA offerings.

The SBA defines a small business as one that is independently owned and operated, for-profit, and not the leader in its field. The details of the specifications vary by industry. For example, a manufacturing business with 500 to 1500 employees could qualify as a small business, depending on the product manufactured. In the retail industry, a qualifying small business does not exceed $5 million to $21 million in annual receipts, depending on the products sold. The SBA’s website has more information on the parameters it uses to define “small” businesses.

Michael Amon, senior vice president of government guaranteed lending at Regions Bank explains that “small” businesses don’t need to be as small as one might think in order to qualify for assistance from the Small Business Administration. Regions Bank is an SBA preferred lender. The bank evaluates the borrower’s application and if approved, the SBA shares the risk with the bank by providing a guarantee of up to 75 percent of the SBA loan.

“A good example of a scenario in which a more-established business might leverage the SBA is a business acquisition. The business may have never used an SBA loan before, but now they are looking to purchase a competitor or integrate a company with a similar business focus. They want to make a purchase that goes beyond what their balance sheet supports, so they may opt to leverage the SBA,” he notes.

One of the chief ways the SBA supports many businesses is by offering loan programs for various needs. In addition to the SBA 7(a) loans program, options include:

  • Real estate and equipment finance loans: CDC/504
    This loan allows a business to purchase major fixed assets, such as long-term equipment or land, including existing buildings. To be considered, businesses must have a tangible net worth less than $15 million and an average net income of less than $5 million after taxes for the preceding two years. They also must not have funds available from other sources. The SBA looks for candidates that demonstrate an ability to pay back the loan based on projected operating cash flow, among other factors.
  • Small Loan Advantage Program
    In 2011, the SBA rolled out new initiatives as part of its successful Advantage program, designed to increase the number of SBA 7(a) loans approved in underserved communities. The Small Loan Advantage program has a streamlined application process and up to $350,000. Loans are typically approved within 10 business days.
  • Export Working Capital Program
    This program provides up to $5 million in advances for companies engaged in export transactions. The funds can be used for a wide range of purposes, such as financing supplies, goods, letters of credit, and working capital, among others. This loan has a low guaranty fee and is typically processed quickly.

In addition, a larger small business may find help at the SBA. For example, some may use the SBA 7(a) loan program to take advantage of a low down payment option on asset purchases.  

“The 7(a) program enables our customer to borrow up to 90 percent of the project costs,” says Amon. “The borrower may choose this option even if they have the capital to invest more in the project. This scenario would enable them to use that capital for other growth initiatives in the future.” 

For more information, visit www.sba.gov  

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This information is general in nature and is provided for educational purposes only. Regions makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information presented. Information provided and statements made by employees of Regions should not be relied on or interpreted as accounting, financial planning, investment, legal, or tax advice. Regions encourages you to consult a professional for advice applicable to your specific situation.