Using SBA 7(A) & SBA/CDC 504 loans for Working Capital, Equipment Financing, Real Estate Purchase, Debt Refinancing, Business Acquisition & More

A lack of access to financing can be a major impediment to rapidly growing a business.  Qualifying for bank loans and financing is a tricky process.  SBA loans are often viewed as an easy to get loan, but it is important to make sure you understand what the loans are for, and even more important to figure out which banks are interested in doing the loans for businesses in your industry.

The Two primary types of SBA loan programs are the 7(A) and CDC/504 program.

SBA (7A)

The SBA 7(A) acquisition loan is known as the ‘kitchen sink’ loan.  This is because the SBA 7(A) loan can be used for many purposes, some of which are the following:

• Working Capital
• Equipment Purchase Financing
• Building Construction
• Building Renovation
• To Purchase Commercial Real Estate
• To Buy and Acquire an Existing Business
• Refinancing of certain types of business debt.
• To start a new business

Things that an SBA 7(A) loan cannot be used for are to repay tax debts and to effect a partial change in business ownership.  Also, in light of refinancing debt, an SBA 7(A) loan can not be used to refinance debt where an existing lender is going to take a loss.  Another type of debt that an SBA 7(A) loan can not be used to eliminate is debt owed by a business to the owner or shareholder of the business.

Also, the maximum loan amount is currently up to $5,000,000 for SBA 7(A) loans.

SBA/CDC 504

The SBA 504 loan program is one that includes a Certified Development Company (CDC) and a lending institution.  This is a key difference from the 7(A) program which does not involve a CDC.  An SBA/CDC 504 loan can be used for fewer purposes in comparison to the 7(A) program.

There are the allowed uses of an SBA/CDC 504 loan:

• To finance the purchase of Machinery & Equipment
• Purchase of Commercial Real Estate for Owner Occupier Use
• Construction of Improvements to Commercial Real Estate such as parking lots, street improvements and more
• Construction of new facilities
• Renovation of existing facilities

An SBA/CDC 504 loan can not be used for purchase of investment commercial real estate, working capital, financing inventory and refinancing debt.

Just like the 7(A) program, the maximum loan amount for the SBA/CDC 504 program is $5,000,000.

Do most banks offer SBA Loans?

Yes!

Does that mean your business will get a loan from most banks?

No!

Why not?

Since each bank has different underwriting criteria and differing needs in their loan portfolio, your business may not be a good fit for the bank, even though you may see advertisements that says that that particular back can do the loan product you need.  If you apply with a bank that won’t fund your loan, you will end up wasting time and money, both of which may adversely affect your business.  It’s important to choose the right bank from day one to avoid the heartache and hassle of spending weeks in the application process only to be ultimately denied.

For assistance in identifying the best bank for your business needs contact our Client Care Manager Sonia Chhabra at (888) 926-9193 or email cs@justelementary.com