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Financing
Types Of Loans
SBA loans are available for most business purposes, including business start-up. Loan proceeds can be used to purchase such things as machinery and equipment, furniture and fixtures, real estate, supplies and inventory. Working capital loans and line-of-credit loans can be used to finance inventory and receivables. Refinancing of existing loans is possible in certain circumstances. See list of participating lenders
A popular loan program for the purchase of fixed assets is called the 504 program. Fixed assets can include real estate, furniture and fixtures, leasehold improvements and machinery and equipment. These loans are for specific projects that are financed by both a bank loan and a separate loan provided through an SBA-approved certified development company. The loans are either ten or twenty years in term, with the certified development company loan provided at a fixed interest rate that is very reasonable.
In another loan program, the Idaho State Treasurer’s office helps SBA provide loans to small businesses at the prime rate of interest, which is normally only available to the banks’ best customers. This loan program is called Idaho Prime. The amount of these loans is currently limited to $150,000. Ask your banker for additional information or call the SBA district office.
Terms & Conditions
SBA loans to purchase real estate can be for periods of up to 25 years. Machinery and equipment loans are usually for 10-15 years, and working capital loans can be up to 7 years. When more than one category is being financed, the maturity date will be a blended time period, in between these maximum numbers.
Interest rates are negotiated between the borrower and the lender, subject to an SBA-established maximum rate. Many loans include a variable interest rate that is adjusted periodically based on changes in the prime rate of interest as published in The Wall Street Journal.
A reasonable injection of funds by the borrower is expected for all bank loans. The amount varies depending on the type of business, but it is normally at least 25% of the total cost of the project. The injection can be in the form of cash or assets already invested in the business.
Borrowers should expect to pledge as collateral any of the assets being purchased with the loan proceeds. In addition it is likely that lenders will require that other business assets be pledged as collateral depending on the amount of borrower's equity injection. Owners of 20% or more of the business are required to personally guarantee the loan. If the amount of collateral, depending on the amount of equity injection pledged in the form of business assets is not sufficient, the personal guaranty may be secured with by personal assets, such as borrower's personal real estate.
For a more detailed explanation of the SBA eligibility criteria and the loan application process, please visit our website at http://www.sba.gov/financing/index.html.
The Next Step
In order to obtain a commercial loan, you will need to present a plan to the lender to demonstrate that you know what you are doing and that you will be able to repay the loan in a timely manner. Unless you have been in business for several years and have a history of profitability, you will normally have to submit a formal business plan explaining your business concept and showing that your financial projections are attainable.
Expert assistance is available to you through the SBA district office and our group of resource partners at little or no cost. Whether you need help in researching the market, preparing a business plan, preparing a loan proposal or developing a strategic plan, our professional business counselors can start you in the right direction.
If you have already done your homework, or if you are already operating a successful business, you may be in a position to approach a lender directly. Our advice to you is to start with a bank or financial institution of where you are already a customer. Although banks are always looking for new customers, most will prefer to work with an existing customer.
Most local banks are active participants in the SBA loan programs, so you will have no trouble finding a knowledgeable lender. A list of participating lenders, including those banks who have attained a special status with the SBA as “Preferred” or “Certified” lenders, is included on this website.
Certified Development Companies
The 504 Certified Development Company (CDC) Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land, buildings, and equipment. A Certified Development Company is a nonprofit corporation set up to contribute to the economic development of its community or region. CDCs work with the SBA and private-sector lenders to provide financing to small businesses. There are about 290 CDCs nationwide and five in Idaho. Each CDC covers a specific area.
Preferred / Certified Lenders
Preferred and Certified lenders are those who have been actively involved in regular SBA lending and have met certain other criteria. They have special authority and are given a three-day turnaround by the SBA for most of their applications. Certified and Preferred lenders account for nearly 40 percent of all SBA business loan guaranties.
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