Fed Offers 3 New Programs For Small Businesses
WASHINGTON - the U.S. Small Business Administration (SBA) has announced three new programs aimed at increasing the availability of SBA 7(a) loans in underserved communities throughout the country. The purpose of these SBA initiatives is to help ensure entrepreneurs and small business owners have the tools they need to start and grow their business and create jobs.
Flagship Loan Program - The SBA 7(a) loan program is the Agency's flagship loan program for providing small businesses access to operating funds. They are the most flexible types of loans since they can be utilized for a variety of business purposes such as working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets.
The 7(a) Loan Program is SBA’s primary program to help start-up and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels. The name comes from section 7(a) of the Small Business Act.
Based on Loan Guarantees - SBA itself does not make loans, but rather guarantees a portion of loans made and administered by commercial lending institutions. Most American banks participate in the SBA 7(a) loan program. The SBA guarantee is up to 85% on loans up to $150,000 and 75% on loans from $150,000 to $250,000.
U.S. Small Businesses - To be considered for a 7(a) loan, applicants must meet certain eligibility requirements. The main criteria are that the business be small (within SBA size standards) and that they do business within the United States.
Three New SBA Program Initiatives - The three SBA Programs announced were as follows:
1. Community Advantage Program – For the first time in the history of SBA's 7(a) lending program, the SBA will provide loan guarantees through community-based lenders such as CDFIs and micro-lenders. The purpose is to bring the lending directly into underserved markets across the country. The loans, up to $250,000, will be coupled with technical assistance to assure business success. The loans will use SBA's streamlined two-page loan application procedures which reduce paper work by 50%. Up to 50 community-based lenders will be brought into the program in Year I, up to 100 in Year II, and possibly up to 150 in Year III. Lenders will be required to keep 50% of the value of their loans in underserved markets.
2. Small Loan Advantage Program – The purpose of this initiative is to incentivize the 630 large banks participating in the SBA 7(a) loan program to do more in smaller loan lending. These loans would be for businesses that are looking for smaller loans (less than $250,000). The program would streamline the application process and reduce paperwork by 50%.
3. Advisory Council on Underserved Communities – A national council will be created to advise SBA on what more can be done to strengthen the Agency's support for underserved markets. The Council will consist of 20 members of leading small business leaders and advocates. SBA will begin seeking nominations for the Council early in 2011.
First Loans - It is anticipated that the first loans made through these new SBA initiatives will take place in mid-March, 2011. Local Hispanic Chambers of Commerce may contact their local SBA offices to find out how to participate in the SBA Micro-Loan Program.