Programs

THE PRE-QUALIFICATION PROGRAM

This Pilot Loan Program helps eligible small businesses access capital through the coordinated efforts of both the public and private sectors. The program uses local, private-sector organizations as intermediaries to assist in the loan process.

A prospective borrower works with the intermediary to develop a viable loan application. The application is then submitted directly to SBA for expedited consideration of a loan pre-qualification. On approval, the intermediary also can assist the applicant in locating a competitive lender.

Generally, the program is for loan requests of $250,000 or less; some SBA offices, however, have established other local limitations.

WHO IS ELIGIBLE

Businesses that:

* Meet the size standards and general eligibility requirements for a regular SBA 7(a) loan
* Are not engaged in speculation or investment, including rental real estate
* Are at least 51% owned and managed by women, U.S. military veterans, or designated ethnic minority persons

If a borrower currently has an SBA loan, and the combined loans requested as a result of this program exceed $250,000, the request can be processed under this program only if a waiver is granted by the local SBA office.

Applicants who have a criminal conviction or bankruptcy history are not eligible under this program (they may, however, be considered under SBA's 7(a) Loan Guaranty Program).

DOCUMENT PREPARATION

The business works with a local technical assistance organization (intermediary), designated by the SBA, to prepare a business plan and complete a pre-qualification loan application.

SUBMIT AN APPLICATION

The intermediary reviews credit information, performs a loan analysis, and submits the application to the SBA.

REVIEW

The SBA reviews the completed application to determine whether it meets the requirements for a guaranteed loan and makes an approval decision.

QUALIFY

If the SBA approves the application, the agency issues a pre-qualification letter. This letter is intended to be a commitment to the applicant on behalf of the SBA to authorize a loan guaranty.

SELECT A LENDER

When an applicant receives the SBA's pre-qualification letter, the intermediary can assist in locating a competitive lender interested in making an SBA-guaranteed loan.

WHAT YOU NEED

Business financial statements or tax returns and personal financial statements will be required from all owners and guarantors. Applications for new businesses will require submission of a business plan. If proceeds are to be used to purchase an existing business, a copy of the terms of sale and a financial statement on the existing business are required, as well as a statement of benefit to the business as a result of the purchase. If buyer and seller are related, that must be disclosed on the application.

USE OF FUNDS

Loan proceeds can be used for normal business purposes such as working capital, equipment and inventory purchase, construction and purchasing real estate. Proceeds may not be used for distribution to principals.

INTEREST RATES & FEES

Applicants may negotiate terms with the lender, however interest rates and fees cannot exceed the maximums established by the SBA for regular 7(a) loans.

MATURITY

The length of time for repayment depends on the ability to repay and the use of the loan proceeds. Generally, the loan maturity will be between five and 10 years for working capital; up to 10 years for machinery and equipment; and up to 25 years for real estate, construction, or the purchase of equipment with a useful life of 25 years.

CREDIT/COLLATERAL

Primary considerations include a willingness and ability to pay debts, as indicated by a good credit history; the likelihood that expected earnings will be sufficient to pay obligations; and the probability that the business has a good chance of achieving success with the requested financing. Normally, business assets will be pledged, and personal assets when warranted. As with all 7(a) loan programs, loans will not be declined where inadequate collateral is the only unfavorable factor. All owners of 20 percent or more of the business are required to personally guarantee the note.

EQUITY

The applicant must have a reasonable stake in the business.