8/9/2006

FINANCING GROWTH WITH THE SBA LOAN PROGRAMS

By: Douglas H. Adams, Vice President, Comerica Bank

      Starting, acquiring, or expanding a business often presents unique challenges to the business owner.  While the owner may need to purchase equipment or real estate, he or she may have limited funds available because the firm's equity must be conserved for other projects.  In other instances, the owner may need to repay the loan over a longer period of time than is possible through conventional financing.  An option to consider in these situations is the Small Business Administration’s 7(a) and 504 loan programs.

     SBA 7(a) loans can be made up to $2 million and can be used for a multitude of purposes including, but not limited to: the purchase of owner-occupied real estate, construction, renovation, leasehold improvements and refinancing existing debt.  The SBA 7(a) loan can also be used to purchase equipment, acquire a business, acquire or start a franchise operation or a professional practice.

     Among the fundamental advantages of SBA lending are lower down payments (i.e. 10 percent on real estate) and longer amortizations (i.e. 25 years on real estate, 10 years on machinery and equipment, 10 years on leasehold improvements, etc.).

     While the SBA 504 loan program has a higher loan maximum (up to $9 million for certain industries), it is limited to the purchase of fixed assets (i.e. real estate, machinery and equipment).  In a typical SBA 504 loan structure, 50 percent of the financed amount is provided through a bank, up to 40 percent through a certified development corporation (CDC) and 10 percent through the owner's equity. 

     Loan terms from banks and the CDCs vary.  Bank loan terms for equipment and machinery are at least seven years; for the development organization, the loan terms are 10 years.  For real estate transactions, bank loan terms are frequently structured at 10 year terms with 20 year amortizations, and the CDC’s loan structure offers fixed rate financing amortized over 20 years.

     For more information on SBA lending, contact Brian Regan via phone or email, (810) 240-6175, sba@michiganbowling.com.