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Spokane, Washington  Est. May 19, 1883

Sba Guarantees Of Loans Can Work

Paul Willax The Spokesman-Revie

In recent months we’ve received many inquiries concerning the loan program of the Small Business Administration.

Seems there’s quite a bit of confusion as to who is entitled to what, for what, under what circumstances. We’ve touched on this subject before, but apparently a review would be helpful.

First, SBA does not make loans; it guarantees loans. So, to begin the borrowing process, you should visit a bank that offers commercial loans to businesses like yours.

Prepare the normal loan application, provide all the information that will make your case for a loan, and hope for the best. If you are granted the loan, you obviously don’t need the SBA.

But, if you are faced with a turn-down and you have good reason to expect that other bank lenders will present you with the same result, it might be time to turn to the SBA.

At this point try to get some feedback from the lender about the reasons for denial and your prospects for approval if you are able to have a significant portion of the loan guaranteed. Banks are often cautious about giving such information but, if you are really out of the ballpark, the lending officer might be able to help you avoid additional frustration with other lenders, including the SBA.

Remember, in order to secure a loan through a Small Business Administration program, both the agency and a bank must look favorably on your circumstances.

If, however, after a realistic appraisal of your situation, you are encouraged enough to continue, submit an application to the SBA. The process really isn’t that difficult.

You can borrow to purchase land, building and equipment, or to provide working capital or acquire inventory. Almost any worthwhile business activity can be considered.

The SBA can guarantee up to 90 percent of loans less than $155,000, and up to 85 percent of loans greater than that, with a maximum guarantee of $425,000.

The term of a loan will depend on the purposes for which it will be used. A loan for real estate can go as long as 25 years; for machinery and equipment, 10 years; and for working capital, seven years.

Both fixed and variable rates are offered, and they typically range from 2.25 to 2.75 points over the prevailing prime rate.

The SBA’s “LowDoc” - or low documentation - loan program can be especially helpful for loans under $100,000. There’s very little paperwork and in most cases a quick decision is rendered.

However, information about the credit histories of you and your business should be compiled. Prepare a summary description of your business and the industry it’s in, your plans for its future, and the reasons you need financing.

An illustration of just how you will use the funds is essential. Be prepared to submit a business plan along with your application. Also, formulate practical, defensible financial projections that show how you will repay the loan.

While this kind of borrowing probably won’t require full collateralization, you must be able to demonstrate an adequate flow of funds for loan repayment.

Last but not least, be ready to provide a personal guarantee for the amount borrowed.

To get started contact your bank loan department or the Business Information Center (509-353-2800) in the Chamber of Commerce building at 1020 W. Riverside.

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