SBA Programs
7(A) Program
The 7(a) Loan Guarantee Program represents about 80 percent of the financial assistance supported by the Small Business Administration (SBA). The program guarantees loans offered to small business by private sector-lenders with a contribution of at least 10 percent equity from the small business being helped. This helps small companies that might otherwise have trouble getting funding from a bank or other lender by ensuring that the lender won't lose the full amount of the loan if the business fails. The SBA also offers a limited number of loans directly to small businesses. The SBA backs guaranteed loans. This means that if a business defaults, the SBA will pay a previously agreed-upon percentage of the loan to the lender. The maximum that the SBA can guarantee is $750,000, which represents a 75 percent guarantee of a $1 million loan. However, the SBA can guarantee 90 percent of loans under $155,000. In general, the SBA can guarantee up to 85 percent of loans over $155,000 as long as SBA liability does not exceed the $750,000 cap. The minimum amount that the SBA can guarantee is 70 percent.
504 Program
Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the Certified Development Company (CDC) (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business being helped. The maximum SBA debenture is $1,000,000 for meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $35,000 provided by the SBA. The maximum SBA debenture is $1.3 million for meeting a public policy goal.
