SBA loans have been the key to many successful businesses. An SBA (Small Business Administration) loan is a type of business loan that is guaranteed in part by the U.S. government. SBA loans can offer certain benefits not available with other types of loans.
At Generations we have commercial finance professionals who focus on helping members obtain SBA loans. Our Lending Group is a dedicated line of business focused exclusively on lending to businesses like yours.
Ready to help
As an SBA Lender, Generations is proud to do our part to help small businesses overcome their current economic challenges and position themselves for future growth.
SBA loans can offer certain benefits not available with other types of loans. These loans can be used for many purposes, but are typically used to finance:
- Owner-occupied commercial real estate
- Working capital
- Furniture and fixtures
- Leasehold improvements
- Debt refinance
- Start-up businesses
In general, to be eligible for a SBA loan, the prospective loan recipient must have:
- A for-profit enterprise doing business in the U.S.
- Reasonable equity
- Pursued alternative funding resources, including personal assets
Some businesses types are not eligible for an SBA loan. These include:
- Real estate investment firms
- Pyramid sales programs
- Gambling ventures and charitable
- Religious and otherwise nonprofit outfits
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. There are multiple 7a loan types and more information can be found by visiting the SBA website.
The CDC/504 loan program is a long-term financing tool designed to encourage economic development within a community by providing a financing option to acquire major fixed assets for expansion or modernization. Essentially, the 504 program is a collaboration between the lender, CDC/SBA and you. The CDC/SBA permanent loan often offers competitive fixed interest rates for the term of the loan on the CDC/SBA debenture loan amount of up to 40% of the total eligible project cost.
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:
- A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost
- 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
- A contribution from the borrower of at least 10 percent of the project cost (equity)
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.
Proceeds from 504 loans must be used for fixed asset projects, such as:
- The purchase of land, including existing buildings
- 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
- The purchase of long-term machinery and equipment
The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt or refinancing.
To be eligible for a CDC/504 loan, your business must be operated for profit and fall within the size standards 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.
Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.
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.