Entrepreneurship in America remains vital to the U.S. economic growth. The number of new business establishments tends to rise and fall with the business cycle of the overall economy. The U.S. Bureau of Labor Statistics collects data on new businesses and job creation. The number of business starts is roughly 550,000 per year, yet survival rates are tough. A major reason is often lack of business capital.
A major source of entrepreneurial funding is through the Small Business Administration (SBA) loan programs. The primary SBA lending program is the SBA 7(a) guaranty loan program which is extended to business owners to use for start-ups, expansion, business acquisition working capital, equipment and inventory. The maximum loan amount is $5,000,000 and the terms vary and range between 7 years for working capital and 25 years for real estate. As an example, the bank of which I am a director recently approved a $3 million loan to a restaurant owner to take out the construction loan on his building in which he has two different food service establishments.
Another popular SBA loan program is the SBA 504. This program is focused on commercial real estate, either new construction or acquisition and some major equipment financing. Maximum loan size is $13,500,000. Loan terms can be up to 30 years. A recent example that I have seen is a $12,000,000 loan to construct a new assisted living complex.
Community banks are very interested in pursuing these loans. The SBA guarantees a major portion of the indebtedness. The loans are often sold in the secondary market, freeing capital for the bank. In addition to origination fees, the banks also earn a servicing fee.
The key for a business owner is to find an experienced SBA lending group that has an extensive record of underwriting and closing these loans for business capital.
Posted by David Sinyard.