SBA

SBA loans are small-business loans guaranteed by the Small Business Administration and issued by participating lenders, mostly banks. The business’ net worth cannot exceed $15mm and the average net profit after 2 consecutive years cannot exceed $5mm. The loan structure is typically 50% loan-to-cost from a bank + 40% loan-to-cost from a CDC (Certified Development Company) + 10% cash from the borrower. Under certain circumstances, a borrower may be required to contribute 20% of the project cost in cash. The bank’s collateral is a 1st lien on the property while the CDC’s collateral is a second lien. The terms of the first lien are dictated by the bank. The second lien is usually a 20-year term loan with a fixed interest rate. The SBA’s 504 Program’s loan proceeds can be used to buy a building, finance ground-up construction or building improvements, or purchase heavy machinery and equipment. Loans cannot be made to businesses engaged in nonprofit, passive or speculative activities. Generally, a business must create or retain one job for every $65,000 guaranteed by the SBA. Small manufacturers must create or retain a ratio of one job for every $100,000. For existing buildings, the owner occupancy must be at least 51%. For new construction, the owner occupancy must be at least 60%.