Your Local SBA

FINANCING

7(a) Loan Guarantee Program is SBA’s primary, multi-purpose small business loan program.  SBA guarantees a large portion of the loan which allows the participating lender to offer small business loans they would normally be prohibited from making.  This means that if the borrower defaults, the U.S. Government will reimburse the lender for its loss, up to the authorized percentage of SBA’s guarantee.  SBA’s loan guaranty makes loans available to small businesses when they cannot qualify for a commercial loan. The maximum size loan SBA can offer is $2,000,000.  Please note there are no grants from SBA to start or expand a small business.

APPLYING FOR A SBA LOAN:
 We recommend you do one or all of the following 4 steps BEFORE approaching an SBA participating lender.

STEP 1.   Learn how to approach a lender and select the right lender for your needs by attending a free SBA loan clinic.  To register, visit our web site at www.sba.gov/az and click on the “On-Line Registration” link.  Select “SBA Loan Clinic” from the drop-down menu or call our office at (602) 745-7200.

  • Learn business loan basics, SBA’s role, and how to estimate loan costs.
  • Prepare a SBA loan application including lender credit requirements for loan approval.
  • Find sources to capital to start or grow your business including alternative to loans.
  • Learn loan interest rates, terms, amounts, and collateral requirements.
  • Approach a SBA participating lender to improve your chance of success for loan approval.
  • Find banks that are interested in your loan needs.  Of the seventy-plus lenders, all have different credit requirements and this class will show you which lenders are seeking start-up loans, growth, equipment, financing, Lines of Credit, working capital, or real estate loans.
  • Finally learn if getting your credit pre-reviewed by SBA will help over come business capital obstacles. Click here for more information. 

STEP 2.   Create your business plan if a start-up and/or loan proposal, if an existing business over two years.  If necessary, obtain FREE assistance from a SBA resource partner in preparing your information at our counseling link.  This will improve the quality of your presentation if you receive professional assistance.  SBA resource partners are SCORE Chapters, Small Business Development Centers, Women Business Centers, and SBA-licensed community micro lenders.

STEP 3.   Select the right lender. After learning how to find the right lender and what they are seeking, the next step is to contact a number of participating lenders to determine what products and services they offer and if they will meet your needs.  If you are unsure of whom to approach, go back to Step 1.  IA listing of participating lenders with loan preferences is located at LENDER.PDF.  If you need help in selecting a SBA lender, click on SELECTING A SBA LENDER.PDF.

STEP 4.   The next step is to start the loan application process with the lender you have selected.  If the lender chooses to accept your application processing, they will submit the completed loan application to the SBA for final approval.  Lenders that are designated Preferred Lenders (PLP) have delegated approval authority and can get SBA loan approval in generally one day. If approved by the Lender and SBA, the lender closes and funds the loan. You make monthly payments to the lender.

SBA Loan Readiness Assessment:
The Arizona District Office can review your financial and credit factors to determine if you are presently bankable.  We offer this free service as part of our continuing community outreach to current and prospective entrepreneurs.  It is free and takes about an hour to complete.

Will this service guarantee you a SBA loan?  No, there are no guarantees you will get a loan from a bank even with a SBA guarantee.  Applying for a SBA loan is similar to applying for a typical commercial loan.  The process is nothing like a consumer loan that you may be accustomed to as it may take weeks to complete.  Commercial loans take much longer and require more paperwork.  This process will help you identify any obstacles BEFORE approaching the lending community.

SBA provides financial assistance to small business owners in the form of loan guaranties through SBA participating lenders and this pre-approval offer is based on our limited review of your financial and credit information.  This limited information prevents SBA from performing a comprehensive credit and financial analysis that is required for most typical commercial or SBA loans.

Applicants should be aware that the participating lender will perform their own due diligence by completing an extensive financial analysis of your loan request and may find the credit request below the lender credit standards even with an SBA loan guaranty.  Please note participating lenders may require additional collateral, increased equity injection or other conditions as a basis for loan approval.  This type of in-depth review is not performed during this credit interview with a SBA Loan Officer.

HOW DO I APPLY?  Go to our SBA website at www.sba.gov/az and click on the “On Line Registration” Link.  Click the SELECT SEMINAR drop down menu titled “SBA Loan Readiness Assessment” and complete the registration form.  We will send you the necessary information to get started.  For more information, click here.


7(a) LOAN PROGRAM:

ELIGIBILITY:

A business must be operated for profit, meet our program eligibility requirements (CLICK HERE for more information) and may not exceed SBA’s size standards (CLICK HERE for more information).  99 percent of all businesses in Arizona are small businesses as defined by the SBA.

INTEREST RATES APPLICABLE TO SBA'S 7(A) LOANS:

Interest rates are negotiated between the borrower and the lender and are subject to SBA maximums, pegged to the Prime Rate. Interest rates may be fixed or variable. Loans more than $50,000, interest rates must not exceed Prime plus two and one-quarter percent (2.25%) if the maturity is less than seven (7) years, and must not exceed Prime plus two and three-quarters percent (2.75%) if the maturity is seven (7) years or more. For loans between $25,000 and $50,000 maximum rates must not exceed three and one-quarter percent (3.25%) and three and three-quarters percent (3.75%), respectively and loans of less than $25,000, the maximum interest rate must not exceed Prime plus four and one-quarter percent (4.25%) and four and three-quarters percent (4.75%), respectively.

7(A) LOAN TERMS AND USE OF PROCEEDS:

How many years you have to repay the loan is based on your ability of your business to repay the loan and what you are financing. The general terms are 5 to 10 years for working, up to 25 years for the purchase and/or construction of real estate including major renovation, and to purchase equipment is based on the “use-life” of the equipment, generally 3 to 15 years. A weighted-average term will be calculated for multi-purpose use loans. If you are buying or selling a business, click here for tips on using SBA financing

If you are looking to refinance debt or a SBA loan, please click here for a brochure covering this unique need

SBA’S 7(A) LOAN MAXIMUMS and GUARANTEE PERCENTAGES:

Loans $150,000 and less: 85% SBA guarantee.
Loans $150,001 to $2,000,000: 75% SBA guarantee.
SBA’s maximum guaranteed portion is $1,500,000.
$2,000,000 is the maximum gross 7(a) loan amount with a 75% SBA guarantee.

FEES ASSOCIATED WITH SBA 7(A) GUARANTEE LOANS:

To offset the costs of the SBA's loan programs to the taxpayer, the Agency charges lenders a guarantee fee for each approved loan. The fee can be passed on to the Borrower once paid to SBA by the lender. The fee is based on the amount of the loan guarantee and applies to loans with maturities exceeding 12 months:

  • A loan of $150,000 or less, the guarantee fee is two percent (2.00%) of the 85% SBA-guaranteed portion. Lenders may retain (or rebate to the Borrower) not more than 25% of the fee.
  • A loan of more than $150,000 to $700,000, the guarantee fee is three percent (3.00%) of the 75% SBA-guaranteed portion.
  • A loan of more than $700,000, the guarantee fee is three and one-half percent (3.50%) of the 75% guaranteed portion. Add an additional 0.25% on any SBA-guaranteed amount over $1 million (a total of 3.75% on the SBA-guaranteed portion over $1 million).


In addition to the SBA guarantee fee, all loans will be subject to a fifty basis point (0.50%) annualized servicing fee, which is applied to the outstanding balance of SBA's guaranteed portion of the loan. This fee is paid by the participating Lender and cannot be passed through to the Borrower.

TYPES OF 7(A) LOANS:

In addition to the basic 7(a) Loan, SBA offers other loan products for special needs or situations.  Visit your local SBA office or telephone (602) 745-7200 to learn about all of the various SBA 7(a) loan products from which a lender may choose to assist your small business, including but not limited to, SBAExpress; Community Express; Export Working Capital; International Trade.

PARTICIPATING 7(A) LENDERS LOCATED IN ARIZONA:
 
Local 7(a) Lenders are those who have been trained in SBA loan-guaranty processing and have met certain other criteria.  It is important that you understand loan making from their point of view as it is very different than traditional consumer lending.  For more information, click here.
 
MICROLOAN PROGRAM:  (Small loans under $35,000)

Small business loans $100 to $35,000 to prospective small business borrowers.  The SBA makes funds available to nonprofit Microloan Intermediaries, who in turn make loans to eligible borrowers. The average loan size is around $10,000 and many do not require collateral.   Apply directly to any of the four Arizona Microloan Intermediaries.  Many small business owners with limited collateral or credit histories use microloans as a source of capital since SBA’s Microlenders establish their own credit policies.  A list is available at MICROLOAN INTERMEDIARIES. PDF 

504 FIXED ASSET FINANCING PROGRAM:  (Larger loans for real estate)

This program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.   Typically, a 504 loan 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 CDC (backed by a 100% 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.  A Certified Development Company or CDC is a non-profit corporation set up to contribute to the economic development of its community or region.  Application for a 504 Fixed Asset Financing Program loan is made directly to any of Arizona’s CERTIFIED DEVELOPMENT COMPANIES. PDF   Please note that in Arizona, we have seen projects as large as $15 million and as small as $250,000.

 

OTHER SOURCES OF CAPITAL

Did you know that 80 percent of all small business start-ups DO NOT use borrowed money to start?
While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed financing is a close second.  Whether you're starting a business or expanding one, sufficient ready capital is essential.  But it is not enough to simply have sufficient financing; knowledge and planning are required to manage it well.  These qualities ensure that entrepreneurs avoid common mistakes like securing the wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing money.  Before considering an alternative form of financing such as equity investment, you should answer these questions:

  • Do you need more capital or can you manage existing cash flow more effectively?
  • How do you define your need? Do you need money to expand or as a cushion against risk?
  • How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for money under pressure.
  • How great are your risks? All businesses carry risks, and the degree of risk will affect cost and available financing alternatives.
  • In what state of development is the business? Needs are most critical during transitional stages.
  • For what purposes will the capital be used? Any lender will require that capital be requested for very specific needs.
  • What is the state of your industry? Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.
  • Is your business seasonal or cyclical? Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.
  • How strong is your management team? Management is the most important element assessed by money sources.
  • Perhaps most importantly, how does your need for financing mesh with your business plan? If you don't have a business plan, make writing one your first priority. All capital sources will want to see your for the start-up and growth of your business.


EQUITY INVESTMENT and ANGELS AND VENTURE CAPITAL:

The Small Business Investment Company (SBIC) program (or SBIC’s) are privately organized and privately managed investment firms that are licensed by the SBA.  SBIC’s are SBA licensed venture capitalist that have their own capital and with funds borrowed at favorable rates through the Federal Government, provide venture capital to small independent businesses, both new and already established.  Arizona SBIC’s and their investment preferences can be found here.  If you need additional information about financial management for the growing businesses, click here and at the bottom of the page, click on the link titled “Financial Management for a Growing Business” to download the information.

OTHER INVESTMENT RESOURCES:

There are extensive educational resources available to entrepreneurs that want to evaluate different risk capital options and what type may best fit their financing needs.  The following links may provide additional information:

“Private Equity Interactive - Private Equity Primer”

“Venture Capital Overview – National Venture Capital Association”

“Tuck School - Center for Private Equity and Entrepreneurship”

“Young Venture Capital Association - Resources”


Also Visit:
 
How to Apply for a Business Loan
Financing Your Business