Scaling Up Magazine Scaling Up Magazine Summer 2018 | Page 7

SUMMER '18
WHEN MIDDLE market companies
look for financing, they often skip over
loans backed by the U.S. Small Business
Administration (SBA), thinking they’re
only for tiny Main Street businesses.
That can be a big mistake. SBA lending
is on the uptick. The SBA guaranteed
a record of $25.5 billion in 7(a) loans,
used for working capital, in 2017, up
from $15.2 billion in 2012. And it has
cut the turnaround time in its loan
processing centers from six days to three.
So who is eligible for SBA loans?
The widely used maximum size
limits say borrowers can only
have up to 500 employees and
up to $7 million in revenue.
However, there are exceptions, which
can take the maximum employee count
up to 1,500 employees and the top
revenue limit up to $35.5 million. (You
can determine whether your business
counts as “small” by the government’s
definition by going to: sba.gov/document/
support-table-size-standards) In case
you’re not familiar with the SBA’s
programs, the 7(a) loan program provides
loans up to $5 million, with an 85%
guarantee for loans of $150,000 or less
and a 75% guarantee for larger loans.
And the SBA is making it easier to use
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SBA FINANCING
the loans it has guaranteed in a business
acquisition, if one partner wants to buy
out the other. “There used to be an equity
requirement for the partner,” says Bill
Manger, associate administrator for
the office of capital access at the SBA.
The idea was to make sure potential
borrowers were familiar enough with
the business to succeed in running it
alone. “Now we’re saying if you were a
partner in the business for at least two
years, you have enough familiarity with
it,” explains Manger. “We’re not going
to have that strict equity requirement.” program is doing very well.”
In addition, since January, buyers of 688
franchises have become newly eligible
to get SBA-backed loans. Potential
borrowers can use the free Lender
Match tool on the SBA’s website to
find an SBA-approved lender “That’s
been a huge success,” says Manger,
who notes that it has already been
used to make 130,000 matches. In April, the SBA expanded the
repayment period for 504 loans, with
the maximum repayment term shifting
from 20 years to 25. That ensured better
cash flow for borrowers and protection
from interest rate hikes, given that 504
loans have fixed interest rates. The
current ceiling on interest rates for 504
loans ranges from 4.89% to 5.16%.
What will it run you to get a 7(a) loan?
Currently, the maximum interest rates
range from 7% to 9.5% depending on
the loan size and term. In addition
to working capital, you can use them
for export financing, revolving credit
and refinanced business debt. The SBA made the change in
response to requests from both
borrowers and lenders. “If you can
lock in a fixed rate for 25 years, that’s
very positive,” says Manger.
“This year, we are already
up 5%,” says Manger. “The
SBA loans can also come in handy if
you need to buy property or equipment.
The 504 loan program covers fixed
assets such as furniture, real estate,
machinery, equipment, construction,
and remodeling. In the 504 loan
program, the maximum loan amount is
generally $5 million. For certain types
of manufacturers and projects, the limit
is $5.5 million, so it’s worth checking in
with a banker who has expertise in SBA
lending about your particular situation.
www.SBA.gov