The Small Business Administration Innovates the Funding Process
A Home Business Article Contributed by G. Uma Bennett
The Small Business Administration Innovates the Funding Process
If you are looking for Small Business Administration funding of $100,000-$150,000 in funding check with your local office for this program. Since the '50s the SBA has been offering the 7(a) guaranteed loan program, which has had an $10 billion annual volume. But the SBA found that the paperwork involved made it less cost-efficient for lenders to process loans under $150,000. In July of 1994, the Low Documentation loan program changed everything-first offering loans of under $100,000, and now after successfully piloting the program with loans up to $150,000 with unprecedented success.
Low Documentation Success with the Small Business Administration
The introduction of the Small Business Administration Low Doc program has made it easier than ever before for small businesses to get smaller loans. But how does it work? The borrower works with his lender to prepare the loan request with the bank for submission to the SBA. Upon approval, the SBA provides the bank with a guarantee for up to 80% of the loan amount if under $100,000 and up to 75% for loans in excess of $100,000.
The process puts the emphasis on the borrower's character, credit history, and projected cash flow with less significance placed on percentage of equity and collateral.
Advantages of the Small Business Administration Low Doc Program
The introduction of "Low Documentation Program" from the Small Business Administration has some real advantages over other programs. First, the underwriting parameters provided by the SBA for this program involve the same characteristics that we look for in small business tier one loans. Secondly, the emphasis is on simplicity and rapid turnaround on loan requests, two things that have been greatly lacking in the past with the SBA, which has been the key to its success. This combination of factors makes it perfect for the needs of most business owners today.
Conventional Versus Contemporary Small Business Administration Applications
In the past, if you sought funding from the Small Business Administration, you needed to be prepared for hours of paperwork. The standard SBA guaranteed loan request involves the completion of 10 or more forms and/or narrative summaries from the borrower. But the documentation requirements are far more manageable for a Low Documentation loan, with the SBA requiring only a completed one-page application form and historical financial information. In addition, you have a guaranteed 36-hour turnaround time once a completed Low Documentation loan package is received from the bank.
Who is Eligible for Funding from the Small Business Administration?
For an existing business to be eligible for funding from the Small Business Administration, it must have no more than 100 employees with average annual sales for the preceding three years of less than $5 million. Funds can be used as working capital with a repayment term of 7 years, buy machinery and equipment with a repayment term of 10 years or and for real estate purchases with a repayment term of 25 years.
Interest rates cannot exceed Wall Street Prime plus 2 1/4% for 7 year loans, or prime plus 2 3/4% for loans of seven or more years. There is also a guaranty fee collected by the SBA depending on the amount of the loan.
