Conditions between intermediaries and SBA
An intermediary may not borrow more than $750,000 in its first year in the program. In later years, the intermediary's obligation to SBA may not exceed an aggregate of $5 million, subject to statutory limitations on the total amount of funds available per state.
The intermediary must contribute, from non-federal sources, an amount equal to 15 percent of any loan that it receives from SBA. The contribution may not be borrowed. For purposes of this program, Community Development Block Grants are considered non-Federal sources.
During the first year of the loan, an intermediary is not required to make any payments, but interest accrues from the date that SBA disburses the loan proceeds to the intermediary. After that, SBA will determine the periodic payments. The loan must be repaid within 10 years.
The interest rate is equal to the rate applicable to five-year obligations of the U.S. Treasury Department, adjusted to the nearest one-eighth percent, less 1.25 percent. Intermediaries that maintain an average loan size of $10,000 or less may qualify as specialized intermediaries. The interest rate for specialized intermediaries is equal to the rate applicable to five-year obligations of the U.S. Treasury Department, adjusted to the nearest one-eighth percent, less than two percent.
Collateral and default
As security for repayment of SBA loan, an intermediary must pledge to SBA a first lien position in the Microloan Revolving Fund and Loan Loss Reserve Fund (see definitions below), and all notes receivable from Microloans. If an intermediary is unable to pay SBA, or violates the terms of its loan agreement, SBA may demand payment in full.
The intermediary isn’t required to pay SBA any loss or deficiency that may remain after liquidation of the collateral, unless the loss was caused by fraud, negligence, violation of any of the ethical requirements, or violation of any other provision of this part.
Microloan Revolving Fund (MRF)
The MRF is an account into which an intermediary must deposit the proceeds from SBA loans, its contributions from non-federal sources, and payments from its Microloan borrowers. An intermediary may only withdraw from this account the money needed to establish the Loan Loss Reserve Fund, proceeds for each Microloan it makes, and any payments to be made to SBA.
Loan Loss Reserve Fund (LLRF)
The LLRF is an account that an intermediary must maintain in order to pay any shortage in the MRF caused by delinquencies or losses on Microloans. The balance on the LLRF must equal 15 percent of the balance owed to it by its Microloan borrowers.
After an intermediary has been in the Microloan program for five years, it can request that SBA allow it to reduce the amount in its LLRF to as little as 10 percent of its portfolio.
Conditions between intermediaries and borrowers
An intermediary may only make Microloans to eligible small businesses. Proceeds from Microloans may be used only for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. SBA doesn’t review Microloans for creditworthiness.
Amount and maturity
Generally, intermediaries should not make a Microloan of more than $10,000 to any borrower. An intermediary may not make a Microloan of more than $20,000 unless the borrower demonstrates that it is unable to obtain credit elsewhere at comparable interest rates and that it has good prospects for success.
An intermediary may not make a Microloan of more than $50,000, and no borrower may owe an intermediary more than $50,000 at any one time. Each Microloan must be repaid within six years.
The maximum interest rate that can be charged to a Microloan borrower is as follows:
|Maximum interest rate
|More than $10,000
|The interest rate charged on SBA loan to the Intermediary, plus 7.75%.
|$10,000 or less
|The interest rate charged on SBA loan to the Intermediary, plus 8.5%.
An intermediary can ask SBA for assistance to improve its knowledge, skill, and understanding of microlending. SBA awards a grant to a more experienced intermediary, which assists the inexperienced intermediary.
SBA can also provide technical assistance for prospective intermediaries in areas of the country that are either not served or underserved by an existing intermediary.