The two SBA loan programs most often used are the SBA 504 and the SBA 7A programs, each with their own set of qualifying guidelines and eligible uses.

SBA loan usually take longer to originate than conventional loans, but for businesses the SBA loan can be a valuable financing tool when most lenders will not extend credit.

Cornerstone is adept at handling all required SBA paperwork, and in working with special non-profit groups and lenders designed to shephard these loans for the SBA.

Details about the two loan programs are listed below:

SBA 504

The 504 Program provides growing businesses with long-term, fixed-rate financing for major fixed assets, such as land and buildings.  There are about 270 CDCs nationwide, with each covering a specific geographic area.  Cornerstone maintains a database of contact information for each of the SBA 504 lenders throughout the country.

Typically, a 504 project includes a loan secured with a senior lien from a private-sector lender covering up to 50 percent of the project cost, a loan secured with a junior lien from the CDC (backed by a 100 percent SBA-guaranteed debenture) covering up to 40 percent of the cost, and a contribution of at least 10 percent equity from the small business borrower.

Maximum Loan Amount

The maximum SBA loan amount is $1,500,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $50,000 provided by the SBA except for "Small Manufacturers" which have a $100,000 job creation or retention goal (see below).The maximum SBA debenture is $2.0 million when meeting a public policy goal.

The public policy goals are as follows:

• Business district revitalization.
• Expansion of exports.
• Expansion of minority business development.
• Rural development.
• Increasing productivity and competitiveness.
• Restructuring because of federally mandated standards or policies.
• Changes necessitated by federal budget cutbacks.
• Expansion of small business concerns owned and controlled by veterans (especially service-disabled veterans)
• Expansion of small business concerns owned and controlled by women.

The maximum debenture for "Small Manufacturers" is $4.0 million. A Small Manufacturer is defined as a small business concern that has:
Its primary business classified in sector 31, 32, or 33 of the North American Industrial Classification System (NAICS); and All of its production facilities located in the United States.

In order to qualify for a $4 million 504 loan, the Small Manufacturer must 1) meet the definition of a Small Manufacturer described above, and 2) either (i) create or retain at least 1 job per $100,000 guaranteed by the SBA [Section 501(d)(1) of the Small Business Investment Act (SBI Act)], or (ii) improve the economy of the locality or achieve one or more public policy goals [sections 501(d)(2) or (3) of the SBI Act].

What funds may be used for :

Proceeds from 504 loans must be used for fixed asset projects such as: purchasing land and improvements, including existing buildings, grading, street improvements, utilities, parking lots and landscaping; construction of new facilities, or modernizing, renovating or converting existing facilities; or purchasing long-term machinery and equipment.

The 504 Program cannot be used for working capital or inventory, consolidating or repaying debt, or refinancing.

Terms, Interest rates and Fees:

IInterest rates on 504 loans are pegged to an increment above the current market rate for five-year and 10-year U.S. Treasury issues. Maturities of 10 and 20 years are available. Fees total approximately three (3) percent of the debenture and may be financed with the loan.

Collateral:

Generally, the project assets being financed are used as collateral. Personal guaranties of the principal owners are also required.

Eligible Business:

SBA 7A

7(a) loans are the most basic and most used type loan of SBA's business loan programs. Its name comes from section 7(a) of the Small Business Act, which authorizes the Agency to provide business loans to American small businesses.

What SBA Seeks In A Loan Application:

Repayment ability from the cash flow of the business is a primary consideration in the SBA loan decision process but good character, management capability, collateral, and owner's equity contribution are also important considerations. All owners of 20 percent or more are required to personally guarantee SBA loans.

Eligibility Criteria:

All businesses that are considered for financing under SBA’s 7(a) loan program must:

• meet SBA size standards
• be for-profit
• not already have the internal resources (business or personal) to provide the financing
• be able to demonstrate repayment.

Character Considerations:

SBA must determine if the principals of each applicant firm have historically shown the willingness and ability to pay their debts and whether they abided by the laws of their community. The Agency must know if there are any factors which impact on these issues. Therefore, a "Statement of Personal History" is obtained from each principal.

Maximum Loan Amounts

SBA's 7(a) Loan Program has a maximum loan amount of $2 million dollars.

Fees

To offset the costs of the SBA's loan programs to the taxpayer, the Agency charges a guaranty fee and a servicing fee for each loan approved and disbursed.  For loans approved on or after December 8, 2004, the following fee structure applies:

• For loans of $150,000 or less, a 2 percent guaranty fee will be charged.
• For loans more than $150,000 but up to and including $700,000, a 3 percent guaranty fee will be charged.
• For loans greater than $700,000, a 3.5 percent guaranty fee will be charged.
• For loans greater than $1,000,000, an additional .25 percent guaranty fee will be charged for that portion greater than $1,000,000. The portion of $1,000,000 or less would be charged a 3.5 percent guaranty fee. The portion greater than $1,000,000 would be charged at 3.75 percent.