This blog article is part of NH SBDC's "reprint" series drawn from the Finance Guide, published in the October 2016 issue of Business NH Magazine.
The U.S. Small Business Administration (SBA) provides several pieces of the funding puzzle, placed somewhere between conventional commercial financing and alternative lenders. While the SBA is not a direct lender (other than the disaster loan program), we support a variety of lending partners who work in this space.
SBA Loan Programs
- SBA 7(a) loans The 7(a) Loan Program, SBA’s most common loan program, is an enhanced version of a traditional commercial loan. These loans are provided by your standard lenders – banks, credit unions and authorized non-bank lenders. The SBA’s role is to provide a guaranty to the lender to shore up a particular weakness – this allows the lender to say ‘Yes’ more often. The guaranty percentage to the lender varies according to the size of the loan and which loan product being used – there are products for a variety of purposes including term loans, lines of credit, export financing and contract financing. The maximum 7(a) loan is $5,000,000; and the average in New Hampshire is generally around $150,000.
- SBA 504 loans This is a partnership loan product designed for fixed asset acquisition – real estate and long-term equipment. The cost of the project is shared by three partners: An SBA Certified Development Company (CDC); a private sector lender (often the same lenders that participate in the 7a program); and the applicant business. The CDC portion of the product generally cannot exceed $5,000,000, with a minimum of $25,000.
- SBA Community Advantage Loans This is a pilot loan program designed to meet the credit, management, and technical assistance needs of small businesses in underserved markets. Community Advantage provides mission-based lenders access to 7(a) loan guaranties as high as 85% for loans up to $250,000.
- SBA Microloans The Microloan program provides loans up to $50,000 to help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000. The SBA provides funds to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. Two designated nonprofit community-based organizations in New Hampshire, Northern Community Investment Corporation (NCIC) and Accion East, can access SBA funds to provide loans to micro-borrowers.
Not all businesses are SBA loan eligible, although most are. The business must be: for-profit; small by SBA size standards (generally more than 95% of businesses are small); engaged in legal business activities; and using the loan for necessary and customary business purposes. SBA lending partners are well versed in eligibility, and businesses can contact the SBA directly at any time for further clarity.
SBA also has a piece of other funding options, although they are less active. We encourage you to contact the local SBA office if you wish to learn about SBIR (Small Business Innovation Research); SBICs (Small Business Investment Companies); or Surety Bonding, a guaranty product similar to the 7(a) guaranty that enables firms to obtain first-time bonding or larger bonding for larger contracts.
You can find SBA at www.sba.gov and www.sba.gov/nh. You can also find participating lender lists and other useful information there.
Article contributed by Greta Johansson, NH District Director, U.S. Small Business Administration