A bank may decide a borrower is too risky for a standard bank loan but may be willing to lend to the
borrower.
Three United States government program like the Small Business Administration loan programs.
I'll briefly describe some of the major loan programs.
These programs serve small businesses.
For those of you from other countries watching this course you can skip this section if you like since
it focuses on U.S. programs the Small Business Administration also known as the SBA has a variety of
loan programs for small businesses.
As you'll soon see the size of businesses that qualify as small may be bigger than you may guess.
The SBA is a wealth of education and programs for small business owners to major loan programs that
I'll briefly describe in this course of the seven day program for general business loans and the CDC
5 4 program for major fixed assets.
There are other smaller programs they don't cover in this course.
I provide a link on this page to a site where you can get more info about their loan programs some of
the key eligibility requirements for the main loan programs are that the business must be for profit
doing business in the United States.
The owner must have invested equity in the company.
The borrower must also have exhausted other financing options.
The size of the companies that qualify for SBA loans is different for each industry.
There is a huge table that lists all the industries at the SBA site I listed in the previous slide.
Company size for each industry is determined by revenue or by the number of employees.
The ranges of maximum sizes vary considerably but I wanted to give you a rough idea of what the SBA
considers a small business.
It's very roughly a maximum of 8 to 40 million in revenue or one hundred to fifteen hundred employees.
I recognize those are wide ranges but you can see that it extends to some fairly good sized companies.
The main program is the 7 8 program.
There are actually many programs subtypes under 7 8 but this slide gives a general overview of the program.
The maximum loan under the seven day program is five million dollars.
The loans are provided by banks and lenders who receive a guarantee of 75 to 85 percent of the loan.
This reduces their risk so they're willing to lend to risk your small businesses loans can be fixed
or variable rate.
One benefit of SBA loans is that you can get terms that are much longer than Standard Bank business
terms you can get repayment terms without balloons of up to 25 years for real estate equipment and revolving
lines have a maximum term of up to 10 years of for loans are long term fixed rate loans for fixed assets
instead of a loan guarantee like the 7 8 program the SBA takes a second mortgage behind a bank's first
mortgage of up to 40 percent of the project costs.
The SBA funding is provided by a Certified Development Company or CDC the maximum amount of the SBA
CDC portion of the loan is five million dollars.
Once again you can get 10 to 20 year fixed rate loans with no balloon.
That's a much longer fixed term and life of the loan.
The many banks offer to businesses there are some cons to SBA loans.
Remember this is a government program we're talking about here.
So there's lots of paperwork.
The approval process may be longer than standard bank loans.
Some banks can't approve SBA loans themselves and have to send the loan to the SBA for approval collateral
and personal guarantees are required.
Finally the interest rate or fees may be higher than standard bank loans but these are companies that
didn't qualify for loans without the risk reduction provided by the SBA the Farm Service Agency or FSA
provide similar programs to guarantee loans to reduce risk.
The banks that provide loans to family farms or ranchers I listed the FSA loan program page that you
can visit for more information.