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How Do Your Capital Needs and Your Business Profile Fit the SBA Programs?

The mission of the Small Business Administration (SBA) is to provide capital financing to help small US businesses achieve their goals – for sustaining growth and profitability. Successful use of SBA programs requires a demonstrated fit between the capital needs and plan of the small business applicant and the characteristics of specific SBA loan programs. Before pursuing SBA backed financing, it is helpful to consider exactly what the SBA looks for in applications and what programs they offer. Then, refine your capital plan so that it persuasively and demonstratively presents your need and your desired outcome.

Attractive Criteria for SBA Applicants

The SBA backs loans to businesses, not individuals. In general, the SBA considers the dynamics of what a business does to earn income, how its ownership is structured and its location. As you familiarize yourself with SBA programs, start by understanding what the SBA looks for:

Businesses with actively involved, experienced owners. In general, the SBA favors actively engaged business owners capable of creating and executing a successful plan for their business. Like any good investor, they want borrowers with direct or strong transferrable industry experience. The SBA is not designed to invest in venture-backed businesses with absentee or non-engaged ownership.

Business Size and Focus. The business size and focus must also fit within the SBA size standards for the particular SBA program. The business must be “for profit” and have a solid business plan. Any established businesses must demonstrate service of prior business debts. If real estate is part of the loan, the business must use it primarily for its business, not as a real estate investment.

Acceptable Credit. Loan guarantors must have acceptable personal and business credit. Borrowers with greater than 20 percent ownership will need to provide a personal guarantee, and the personal liquidity of guarantors cannot exceed SBA standards.

US-Based. The SBA loans to businesses engaged in or proposing to operate business in the United States or its possessions. The SBA does not loan to businesses located outside of the United States, although the Export Express program does support businesses wishing to expand their business outside of the United States.

Demonstrated Need for a Sound Business Purpose. The SBA is designed to help businesses move forward with growth or improvement. Businesses must demonstrate their need for capital as well as the impact that a capital infusion will have on business financials. SBA monies cannot be used to repay delinquent taxes.

Overview of SBA Loan Programs

The SBA offers specific loan programs to fulfill particular business goals and financing needs.

SBA 7(a) Program.  If your capital needs are $5 million or less and you are looking for a loan with low (10 percent) down payments, the SBA 7(a) Program is a good bet. It can be used for a wide variety of financing needs including growth, acquisition, restructuring, etc.  Terms range depending upon the use of the proceeds.

SBA 504 Program. If commercial real estate is at the core of your financing needs, the SBA 504 could be a fit.  SBA 504 offer longer terms (up to twenty years) with both fixed and variable rates available.  The SBA 504 can often be combined with the SBA 7(a) for businesses with real estate needs combined with other (equipment, acquisition, etc.) needs.

SBA Express Programs. Both shorter-term working capital and asset needs can be met by the SBA Express Programs. The Export-Express program is designed for companies with existing exports or the goal to begin exporting to other countries.

SBA Specialty Programs.  Other SBA programs target military veterans, minority-owned businesses, disaster recovery loans and other special focus programs. Talk to your banker and ask for access to an SBA Specialist to learn more about how these programs may apply to your business.

Putting Together a Successful Capital Plan Using the SBA

With a basic understanding of what the SBA is looking for and how its programs might fit your business needs, consider the following as your make a capital plan for the coming years:

  • Does your capital plan include a narrative of your business goals and the impact of capital investment on the future of the business? Have you shared your plan with your business advisors and asked for their criticism and ideas? Every time you share and refine your narrative, you will improve your chances for success.
  • Does your capital plan include both the cost and the anticipated return on capital on your financial results?
  •  Have you involved your professional financial advisors to make sure that your financial statements and projections are comprehensive with sound assumptions and research?
  • Have you talked with your banking partner about their SBA experience and expertise? Lenders who specialize in SBA have many more resources to help you achieve financing approval within a reasonable timeframe. 

With capital plan in hand, you are in a strong position to take advantage of the SBA’s most attractive features and its best programs to secure funds to reach your business goals.

This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.