Business
Loans
Micro-Loans
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Prequalification Program
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Prequalification Program
SBA Loan Hinges on Business Plan
Micro-Loans
The
MicroLoan Program provides very small loans to
start-up, newly established, or growing small
business concerns. Under this program, SBA makes
funds available to nonprofit community based
lenders (intermediaries) which, in turn, make
loans to eligible borrowers in amounts up to a
maximum of $35,000. The average loan size is about
$10,500. Applications are submitted to the local
intermediary and all credit decisions are made on
the local level.
TERMS, INTEREST RATES AND FEES:
The maximum term allowed for a microloan is six
years. However, loan terms vary according to the
size of the loan, the planned use of funds, the
requirements of the intermediary lender, and the
needs of the small business borrower. Interest
rates vary, depending upon the intermediary lender
and costs to the intermediary from the U.S.
Treasury.
COLLATERAL
Each intermediary lender has its own lending and
credit requirements. However, business owners
contemplating application for a microloan should
be aware that intermediaries will generally
require some type of collateral, and the personal
guarantee of the business owner.
TECHNICAL ASSISTANCE
Each intermediary is required to provide business
based training and technical assistance to its
microborrowers. Individuals and small businesses
applying for microloan financing may be required
to fulfill training and/or planning requirements
before a loan application is considered.
Find
a Microloan Intermediary in Your Area
Prequalification
Program
The
Prequalification Loan program uses intermediary
organizations to assist prospective borrowers in
developing viable loan application packages and
securing loans. This program targets low income
borrowers, disabled business owners, new and
emerging businesses, veterans, exporters, rural
and specialized industries.
The
job of the intermediary is to work with the
applicant to make sure the business plan is
complete and that the application is both eligible
and has credit merit. If the intermediary is
satisfied that the application has a chance for
approval, it will send it to the SBA for
processing. To find out whether there is a
pre-qualification intermediary operating in your
area, contact your local SBA office.
Note: Small Business Development Centers serving
as intermediaries do not charge a fee for loan
packaging. For-profit organizations will charge a
fee.
Once
the loan package is assembled, it is submitted to
the SBA for expedited consideration. SBA conducts
a thorough analysis of the case, using the same
time frame and degree of analysis that it uses
when processing requests under the regular method
of delivery process.
If
SBA decides the application is eligible and has
sufficient credit merit to warrant approval, it
will issue a commitment letter on behalf of the
applicant. The commitment letter or
pre-qualification letter, indicates SBA's
willingness to guaranty a loan made by a lender
under certain terms and conditions. The
intermediary then helps the borrower locate a
lender offering the most competitive rates. The
applicant then takes the letter and its
application documents to a lender for a decision.
Policies
Specific to the Prequalification Program
The maximum loan amount for this pilot program is
$250,000. Interest Rates, Maturities, Collateral
policy, and Guaranty percentages all follow the
standard 7(a)
loan program.
The Minority Financing Gap
Financing a business endeavor-franchise or
otherwise-can be a major hurdle for prospective
business owners. To finance their dreams, most
potential business owners tap into savings and
investments, cash out the equity in their homes or
find investors among friends and family. Rarely
does this gathering of funds cover all of the
costs of starting a business. Additional capital
is often needed to fill the gap, and business
owners look to financial institutions to provide
this capital. For many minority business owners,
however, this need goes unfulfilled.
SBA Loan Hinges
on Business Plan
Having bad credit is one thing, but having a bad
business plan is an even bigger problem.
"It's harder to overcome a bad business plan than
it is to overcome some challenges to your credit,"
said Lance Sexton, vice president/commercial loan
officer at Simmons First Bank in Springdale.
"Ideally, you would like for both things to be in
place."
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