According to the U.S. Small Business Administration, there are more than 23 million small businesses in America, employing about half of the nation’s private workforce.

As the government agency tasked with protecting, strengthening and representing the interests of America’s small businesses, the SBA understands the value of small businesses to the economy better than anyone. In fact, in recent years the SBA has expanded loan guarantees, increased loan amounts and reduced and/or waived fees to bolster even greater growth. The result: more small business owners have had the support they need to realize their full potential and flourish.

What the SBA and government-guaranteed loans can do for your business

While the SBA offers management assistance and special outreach programs to encourage and support entrepreneurs, arguably the most important role it serves is to provide a guarantee for loans made by a lender to businesses that may not otherwise qualify for conventional financing.  In most cases the terms are more favorable than traditional financing.

SBA loans can be used to start a business, expand a business or to supplement working capital. They are designed to be flexible in tough economic times or during periods of rapid growth. Benefits of SBA loans include:

• Longer terms and lower down payments. Borrowers can repay the loan over a period of up to seven years for working capital, 15 years for equipment and 25 years for real estate.
• Lower interest rates. Borrowers can receive the most competitive variable rates.
• More flexible repayment options. Borrowers may be able to delay their first payment by up to three months, are not required to pay “balloon” payments for SBA 7(a) loans and will not face prepayment penalties on loans less than 15 years on SBA 7(a) loans.

The SBA does not make direct loans to small businesses. SBA partners, including traditional lenders, community development organizations and microlending institutions, make loans to businesses according to SBA guidelines.

Loan programs to meet a variety of needs

The SBA has a core set of loan programs that serve a wide range of business needs. The following are some of the more common debt financing programs offered through the SBA.

SBA 7(a) – This is the SBA’s largest loan guarantee program and is designed to provide loans to qualified businesses that cannot otherwise obtain funding on reasonable terms.  SBA 7(a) loans can be used for real estate, equipment and machinery, construction and expansion improvements, working capital support for accounts receivables and inventory, purchasing a business and refinancing business debt. Benefits include longer terms than conventional lending and lower collateral requirements. The maximum loan amount is $5 million.

SBA 504 – This loan is designed for growing a business that needs a long-term, fixed-rate loan for a major asset acquisition, such as the purchase of land and subsequent improvements, construction of a new facility or to acquire new machinery/equipment. The SBA 504 features loan maturities of 10 and 20 years and is designed for project size ranges from $100,000 to $12 million. It also has a job creation requirement.

Working Capital CAPLine – Designed for short-term working capital needs, such as inventory, managing receivables or consolidating short-term debt, the Working Capital CAPLine functions as a working/revolving line of credit. Terms are set by the lender. For example, KeyBank offers maturity up to 10 years with a maximum loan amount of $1 million.

SBA Express Program – Targeted for smaller requests, this loan program allows for an expedited and streamlined application process. Loans may be used for fixed-asset purchase, debt consolidation or working capital. Credit requests can be up to $350,000.

SBA Export Programs – The SBA Export programs provide financing to businesses that will enhance a company’s export development.  The Export Express Program can be used in the form of a line of credit or term loan with a maximum loan amount of $500,000.  The Export Trade Loan Program is a term loan with a maximum loan amount of $5 million.

How can your business qualify for an SBA loan?

To qualify for an SBA loan, a company must be independently owned and operated and must meet SBA employment or sales standards for different business types.

Potential borrowers must also be of good character and demonstrate strong management skills and an ability to pay, based on historic cash flow. Startups must present strong business plans. Businesses must have net worth consistent with industry averages and adequate collateral to secure the loan.

For more information about the financing and support the SBA can provide to your company, call a preferred lender experienced in SBA loans or visit www.sba.gov (the SBA site) or www.key.com/sba. You just might be surprised how much they, and your banker, can do to help you become one of the many small business success stories that prop up the economy by creating jobs and spurring innovation.

About the author: Jennifer Fern is vice president and SBA specialist for KeyBank. She can be reached at 503-750-8507 or at jennifer_fern@keybank.com.