Financing Your Own Business

SBA's Guide to Financing a Small Business or Franchise Opportunity

The guide below will help you learn about the various financing programs offered by the SBA. Links to the SBA home page are also below, and TAO will bring you more information about financing and obtaining venture capital in the future. Using this guide will help you to understand the definition of eligibility for SBA assistance, including:

• Size standards
• Type of business standards
• Use of proceeds' issues
• Understanding the process involved in applying for an SBA loan
• Identifying documents necessary for completing an SBA loan application package

Moreover, this guide will help you to be able to identify and understand credit issues such as:

• Equity investment
• Earnings requirements
• Working capital
• Collateral
• Resource management

All SBA programs are provided to the public on a nondiscriminatory basis.

UNDERSTANDING CREDIT ISSUES

Understanding basic credit issues is the first step in determining whether or not you need, are eligible to apply, or qualify for, financial assistance.

1. Equity Investment:

   Determining whether the company's level of debt is appropriate requires an analysis of the company's expected earnings and the variability of these earnings, as well as the ratio between total debt and equity. Strong equity and low debt levels provide resiliency which will help a firm weather periods of operational adversity. There must be careful examination of the debt-to-worth ratio of a company. Sufficient equity is particularly important to new businesses. Business loan applicants must have a reasonable amount invested to ensure that, along with any borrowed funds, the business can operate on a sound basis. A strong equity position ensures that owners will remain committed to their business.

2. Earnings Requirements:

   Financial obligations are paid with cash, not profits. When cash outflow exceeds cash inflow for an extended period of time, a business cannot continue to operate. As a result, cash management is extremely important. In order to adequately support a company's operation, cash must be at the right place, at the right time and in the right amount. A company must be able to meet debt payments as they come due.

3. Working Capital:

   Working capital is the excess of current assets over current liabilities. Because working capital is the excess of the more liquid, working assets over the obligations of a firm which are due within one year, it measures the funds available to finance a company's current requirements and represents the cushion or margin of protection for a company's short term creditors. Working capital is essential for a company to meet the continuous operational needs of doing business. The adequacy of working capital directly influences the firm's ability to meet its trade and short-term debt obligations and, ultimately, its ability to remain financially viable.

4. Collateral:

   To the extent that worthwhile assets are available, adequate collateral is required as security on an SBA-guaranteed or direct loan. However, a loan generally will not be declined where inadequacy of collateral is the only unfavorable factor. In the event real estate is to be used as collateral, borrowers should be aware that banks and other regulated lenders are now required by law to obtain third-party appraisals on real estate related transactions of $50,000 or more. Certified appraisals are required for loans of $250,000 or more. When commercial real estate represents the major piece of collateral for a loan, the SBA will require a third party appraisal.

   Owner-occupied residences are generally used for collateral when:

   1. The participating lender requires the residence as collateral.
   2. The equity in the residence is substantial and other credit factors are weak.
   3. Such collateral is necessary to assure that the principal(s) remain committed to the success of the venture for which the loan is being made.
   4. The applicant operates the business out of the residence or other buildings located on the same parcel of land.
5. Resource Management:

   The ability of a potential borrower to manage resources is a prime consideration when determining whether or not a loan will be made and in what amount.

   Managerial capacity is an important factor involving such areas as education, experience and motivation. Proven ability in resource management is also a large consideration. Mathematical calculations based on information provided in financial statements provide an illustration of how resources have been managed in the past. It is important to understand that no single ratio will provide a whole illustration but that several used in conjunction with one another will provide an overall picture of management performance.

SBA LOAN PROGRAMS

The SBA is Congressionally-mandated to assist the nation's small businesses in meeting their financing needs. This is accomplished primarily through SBA's 7(a) loan program, the Certified Development Company (503/504) loan program and the Small Business Investment Company (SBIC) program. In addition, the SBA now administers the Microloan Program and has established the new GreenLine revolving line of credit. The many and varied programs are described below.

The 7(a) Loan Program is the largest of the SBA's financial assistance programs, constituting more than 80 percent of all SBA business lending activity. This program includes three types of loans: Guaranteed, Direct and Immediate Participation loans.

1. Guaranty Loans are made and disbursed by private lenders and guaranteed by SBA. If a borrower defaults on a guaranteed loan, SBA will purchase an agreed upon percentage of the unpaid balance. By law, SBA can guaranty a maximum of $750,000.
2. Loans not exceeding $155,000: SBA may guaranty up to 90 percent of all loans under $155,000 except where loan proceeds will be used to refinance existing debt, in which case SBA's guaranty maximum is 80 percent.
3. Loans exceeding $155,000: SBA can guaranty a maximum of 85 percent and a minimum of 70 percent of loans exceeding $155,000 except when part or all of the loan proceeds will be used to refinance existing debt, in which case the rules enumerated above apply. With new money having exposure to exceed $750,000 a lesser guaranty is permitted as long as SBA's exposure is limited to $750,000.

When a guaranty loan is approved, the participating lender must pay SBA a guaranty fee, which may be passed on to the borrower and can be paid from the loan proceeds. This fee is equal to 2 percent of the guaranteed portion of the loan for loans with a maturity of over one year. The fee is 1/4 of 1 percent of the guaranteed portion of the loan for loans with a maturity of 12 months or less.

Direct Loans are available only to borrowers who are unable to obtain lender participation loans. Although the legal ceiling on direct loans is $350,000, SBA has set an administrative ceiling for these loans of $150,000. Direct loan applications in excess of $150,000 can only be accepted with the approval of the Regional Administrator. Because of present funding limitations, direct loans are available only to certain categories of borrowers. These include Vietnam-era and disabled veterans, the handicapped, low-income borrowers and businesses located in high unemployment areas. In order to establish that the requested financing is not otherwise available, a good faith attempt must be made to secure the requested financing from a private lender (from two lenders in cities of 200,000 people or more).

Immediate Participation Loans are those made jointly by SBA and private lenders whereby either SBA or the participating lender makes the loan, then, upon disbursement, the other participant immediately purchases its agreed upon share of the loan. These loans can be serviced either by the lender or by SBA. Immediate participation loans are permissible subject to funding availability, only when a guaranty loan is not available. SBA's participation is limited to 75 percent or $150,000 whichever is less, except in cases where a participant's legal limit precludes a 25 percent participation. Because of direct funding limitations, this program is seldom used.

In general, the following provisions apply to all SBA 7(a) loans. The special loan programs are enumerated later and, where necessary, special provisions are pointed out:

Small businesses which can meet SBA's size and policy standards are eligible for the 7(a) loan program. Businesses currently ineligible include those engaged in illegal gambling, speculation, media, lending, and real property for sale or investment (rental property). The specific terms of SBA loans are negotiated between an applicant and the participating financial institution in the case of guaranty and immediate participation loans, subject to the concurrence of SBA. SBA and the borrower negotiate the terms of direct loans, subject to SBA's policy and lending requirements.

The loan can be of any amount as long as the SBA-guaranteed portion of the loan (or combination of all outstanding loans to any one borrower) does not exceed $750,000. Direct loans (or a combination of all outstanding direct loans to any one borrower) cannot exceed $150,000 except when a waiver is obtained from the Regional Office in which case this maximum is $350,000.

Loan proceeds may be used to establish a new business or to assist in the operation, acquisition or expansion of an existing business, including working capital; the purchase of inventory, machinery and equipment; and the construction, expansion and rehabilitation of business property.

Loan maturity varies according to the prudent economic life of the assetsbeing financed and the applicant's ability to repay--subject to the following maximums:

Purpose	LoanLife
For working capital	Maturity up to 7-10 years
For machinery & equipment	Maturity up to 10-25 years
For building construction or purchase	Maturity up to 25 years

When loan proceeds will be used for a combination of purposes, the maximum maturity can be a weighted average of those maturities, which results in level payments. Or, it can be the sum of equal monthly installments on the allowable maturities for each purpose, which results in unequal payments.

The interest rate for guaranteed loans reflects prevailing market rates and can either be fixed over the life of the loan or can fluctuate with the market. The maximum interest rate permitted on guaranty loans is the lowest New York prime rate (as published in the Wall Street Journal) plus up to 2.25 percent for loans with a maturity under seven years and up to 2.75 percent for loans with a maturity of seven years or more. Direct loans are made at a fixed rate which is set quarterly by Central Office.

Loan Programs. As indicated above, there are loan programs available for specific categories of borrowers. These programs, the Direct Loans and the Special Loans are discussed below.

Direct Loans: Veterans Loan Program

Vietnam-era veterans and veterans with 30 percent or more disability are eligible for SBA's direct loan program as well as the guaranty program. Vietnam-era veterans are defined as veterans who served for a period of more than 180 days, any part of which was between August 5, 1964, and May 7, 1975, and who were discharged other than dishonorably. Disabled veterans are defined as veterans with a disability discharge or with a 30 percent or more compensable disability. To qualify, the eligible veteran must own at least 51 percent of the business and participate in its day-to-day activities. The credit criteria for veteran loans are the same as for all SBA borrowers.

7(a) 11 Loan Program

Businesses located in high-unemployment or low-income areas, as well as businesses owned by low-income individuals, are eligible for SBA's direct loan program. To qualify, a business must be located in an area designated by the Department of Labor as having severe or persistent unemployment; or must be more than 50 percent owned by low-income individuals, defined for the purpose of this program as those individuals having inadequate income to meet basic family needs.

Other SBA Loans:

• Guaranteed Loans to Qualified Employees
• Certified Development Company Program (503/504)
• International Trade Loan Program
• Pollution Control Loan
• Small Loan Program
• Handicapped Assistance Loan Program

For more information about these loans, use the link to the SBA's home page at the top of this page.

What Businesses are Eligible?

The Right Size — Of The Right Type, and Which Ensure The Correct Use Of Loan Proceeds.

Based on the type of business concern, various size standards apply.

Certain types of businesses are restricted from applying for or receiving loans directly from or guaranteed by the SBA. Below is a summary of these restrictions.

1. Nonprofit organizations are ineligible to receive assistance except those qualified as sheltered workshops and operated in the interest of workers with disabilities. For profit businesses owned by nonprofit organizations are eligible.
2. Cooperatives are eligible provided size standards are met, the cooperative is a business in and of itself and, it carries on business activity for the financial benefit of its members who must also be eligible small business concerns. Consumer and marketing cooperatives are not eligible.
3. Businesses dealing in the creation, origination, expression or distribution of ideas, values, thoughts or opinions currently are not eligible. Specialty stores primarily engaged in selling products that promote or advocate ideas are not eligible. Specialized delivery, distribution or transportation concerns limiting themselves to distribution of ineligible material are also ineligible.
4. Any Cable TV system broadcasting live station(s) or selecting which programs are to be transmitted is ineligible.
5. Academic schools are not eligible. However, technical, secretarial, vocational and trade schools are. Nurseries, kindergartens and pre-schools are also eligible provided they are not primarily (50 percent or more of the time) engaged in teaching academic subjects or ideology.
6. Automobile floor planning concerns are not eligible.
7. Gambling concerns are not eligible. However, otherwise eligible small business concerns which derive less than one-third of their income from the following are eligible:
8. Income or commissions derived from the sale of official state lottery tickets under a state license
9. Gambling is licensed and supervised by state authority in those states where such activities are legal.
10. Concerns involved in speculation of any type (including real estate) are ineligible with the exception of a business, such as a grain elevator, which hedges in futures commodity trading in the course of ordinary operations and to protect itself from price fluctuations.
11. Concerns primarily engaged in lending or investment are not eligible with the exception of pawn shops which derive a minimum of 50 percent of their income from the sale of merchandise rather than the interest on loans.
12. Loans may not be made which would encourage a monopoly or be inconsistent with the accepted standards of freely competitive enterprise.
13. Pyramid sales distribution plans are ineligible.
14. Loans to applicants engaged in illegal activities or production, servicing or distribution of illegal products are not eligible.

In addition, applicants currently incarcerated, on probation or on parole or who have criminal cases pending against them are not eligible. Applicants whose probation or parole has been lifted solely because it is an impediment to obtaining a loan are not eligible.

The correct use of loan proceeds differs from program to program. Reference to descriptions of the various loan programs offered by the SBA will yield further information regarding correct use of loan proceeds.

HOW DOES A BUSINESS APPLY FOR A SMALL BUSINESS ADMINISTRATION DIRECT OR GUARANTEED LOAN?

To apply for a guaranteed loan, applicants should take all available financial and other business information to a financial institution, preferably their bank of account. The information should include a written statement describing the business and its history, the proposed use of the loan proceeds and an explanation of how the loan will be repaid. Applicants should always request that their lender make the loan directly.

If the lender is unable or unwilling to make the loan, the applicant should request that the lender consider making the loan under the SBA Guaranty Program. If the lender agrees to participate with the SBA, the applicant will then complete a formal application for forwarding to the SBA. If the lender is not willing to participate, the applicant can then apply for a direct loan from the SBA only if s(he) falls into one of the specified categories of special loan programs discussed above and only if funding is available.

In the case of guaranteed loans, SBA generally deals with the private lender. It does not deal with the loan applicant unless directed to by the lender. The lender interacts with the applicant.

WHAT FORMS WILL BE NECESSARY?

There is a standard group of forms required when applying for, closing and servicing direct and guaranteed loans. The following is a list of the required forms:

Form Number	Form Name	Issue Date
4*	Application for Small Business Loan	2/85
4	Application for Small Business Loan (short form)	9/85
4a	Schedule of Collateral	4/87
4-I	Lenders Application for Guaranty	6/92
159	Compensation Agreement for Services in Connection with Application and Loan	7/89
413	Personal Financial Statement	9/87
529B	Authorization and Loan Application	11/86
601	Agreement of Compliance	10/85
641	Request for Counseling	9/90
750	Loan Guaranty Agreement	10/83
750B	Loan Guaranty Agreement for Short-term Loans	3/80
912*	Statement of Personal History	5/87
1100	Monthly Cash Flow Projection	1/83
1261*	Statement Required by Law and Executive Orders	12/86
1623	Certification Regarding Debarment	10/88
Suspension and Other Responsibility Matters - Primary Covered Transactions:
1624*	Certification Regarding Debarment Suspension, Ineligibility and Voluntary Exclusion - Lower Tier Covered Transactions	10/88
Required Closing Forms:
147	Note	5/88
148	Guaranty	10/85
159	Compensation Agreement for Services in Connection with Application and Loan	11/87
1050	Settlement Sheet	11/86
Servicing Forms:
152	Participation Certificate	9/26
1149	Transcript of Account	11/85
1175	Quarterly Guaranteed Loan Status Report	9/83

^* Always required with loan guaranty application.

REGULAR, CERTIFIED AND PREFERRED LENDERS:

Regular Lenders:

Lenders who are approved by the SBA can make guaranteed loans to small businesses. In the regular lender program, the lender submits completed loan applications to the local SBA office. The SBA completely analyzes the application and gives the lender its decision regarding whether to guaranty the loan or not.

SBA's processing of guaranteed loans, to a certain extent, duplicates the work already performed by participating lenders. SBA has two programs to eliminate some of this duplication - the Certified Lenders Program (CLP) and the Preferred Lenders Program (PLP). These programs were designed to provide faster response to requests for guaranteed loans by relying more heavily upon the lender's credit analysis and, especially in the case of PLP, allowing lenders wider latitude in structuring, servicing and liquidating these loans.

Lender certification benefits the loan applicant, the lender and SBA. Loan applicants receive faster service, lenders increase their ability to more responsively serve their small business customers and SBA is able to leverage its resources to provide better assistance to the small business community. These programs require less staff time than the regular loan program, allowing SBA to better utilize its limited resources while improving service and handling a greater volume of loan applications.

The Certified Lenders Program:

The Certified Lenders Program (CLP) is designed to provide expeditious service on loan applications received from lenders who have successful SBA lending track record and a thorough understanding of SBA policies and procedures. CLP lenders are expected to perform a complete analysis of the application and in return SBA promises a fast loan decision. SBA reviews the lender's credit analysis in a manner similar to the supervisory review of an SBA loan processor's report on a direct loan. SBA still makes the final credit and eligibility decision but, by completing a credit review instead of an independently prepared analysis, SBA strives for 3-day service (working days) in arriving at the decision.

The lender's analysis must include accurate calculation and analysis of all financial ratios, correctly preparing the pro forma balance sheet, periodically visiting the applicant's place of business, checking that the applicant has supplied all necessary exhibits, determining that the applicant can repay the loan, and commenting on all aspects of the application package on Form 4-I (or an adequate substitute to its page 2). Occasional errors or omissions will be corrected by the SBA loan officer in the course of the review of the application, but seriously incomplete or incorrect applications must be returned to the lender or converted to a regular 7(a) loan.

Due to the three-day handling agreement of SBA, screening and control procedures must be expedited on CLP applications, and this same priority handling must be obtained from Counsel. When the application cannot be processed in three days, the lender must be notified by telephone that the application will be converted to regular status.

To be certified or recertified, a lender must have a history of submitting to SBA complete, accurate and adequately analyzed loan guaranty application packages; the ability to process, close, service and liquidate SBA loans; purchase rates and a net loss rate that are acceptable to the local and regional SBA offices; a commitment to submit at least 40 percent of its loan guaranty applications through CLP procedures and at all times have well trained, qualified loan officer(s) well versed in SBA's lending policies and procedures.

The lender takes the following steps to process loan applications under CLP:

• Examines the loan package and makes sure that all necessary exhibits are included
• Performs a thorough, complete, accurate and adequate credit analysis on the application package.
• History (for appropriate members of the applicant's business) at least one week prior to submission of the loan application.
• Makes or obtains an appraisal of the collateral backing the loan.
• Obtains a current credit report from an independent credit agency. (If this credit report contains adverse information which the lender feels SBA should be aware of, but it does not believe it can release a copy or the report to SBA, the lender should alert SBA to the existence of such adverse credit information so that SBA can secure a copy of the credit report.)
• Performs the credit review. (Using SBA Form 4-1)
• Vouches for the good character of the borrower(s)
• Submits the completed package, including the loan authorization conditions, to SBA.

The key aspect of CLP is the greater utilization of the credit knowledge of the lender's loan officers to shorten SBA's loan processing time. Since the lender performs a thorough credit analysis on loan packages prior to submission, SBA relies heavily on the lender's credit analysis in making the decision to guarantee the loan. When processing CLP applications, the SBA loan officer frequently will double check the lender's calculations, prepare the pro forma on the Form 4-I, and thoroughly examine the Form 4 in order to determine if all necessary exhibits have been included in the application. When the package is determined to be complete, the loan officer will review the financial ratios and make an independent determination as to whether the applicant can repay the loan from the profits of the business.

SBA's responsibilities under CLP are as follows:

• Determine if applicant is considered 'small' in accordance with SBA size standards.
• Determine if applicant meets SBA's other eligibility standards
• Review the application package to determine if the lender's analysis is correct.
• Make the final credit decision based on a supervisory review of the complete application and credit analysis submitted by the lender.
• In most cases and assuming that the application materials are signed and complete, SBA will make a decision and, on approved loans, mail or make available the loan authorization within three working days after the application package is received.

Smooth functioning of the Certified Lenders Program requires extensive knowledge of SBA policies and procedures by a Certified Lender's personnel. Loan officers from each Certified Lender must complete an SBA conducted training program, and be available each year for at least two days of follow-up SBA training. The training consists of intensive, formalized instruction in SBA policies and procedures relating to eligibility, processing, closing, servicing and liquidating loans.

The Preferred Lenders Program:

The Preferred Lenders Program (PLP) is another step in SBA's process of "streamlining" the procedures necessary to provide financial assistance to the small business community by maximizing the use of qualified, private lenders in the Agency's financial assistance delivery system. Under PLP, SBA delegates eligibility determination, loan approval, closing, and most servicing and liquidation authorities and responsibilities to these carefully selected lenders.

Each PLP lender is given full authority and responsibility for handling almost all aspects of the guaranteed business loan program, including determining the loan applicant's eligibility and creditworthiness, closing the loan, servicing the loan and, if necessary, liquidating the loan. PLP participants have full authority to approve SBA-guaranteed loans without first sending application packages to SBA. SBA concurrence on all but two servicing actions is not required. If the loan enters into default, PLP participants generally will liquidate the business assets and collateral. PLP lenders handle these loans with minimal SBA interaction (and consequent delays), allowing them to offer more expeditious and flexible/responsive service to their borrowers.

Guaranteed loans made by PLP participants can be for any amount otherwise eligible from SBA but SBA can only guaranty PLP loans up to 75 percent, (regardless of loan amount), versus the 85 or 90 percent maximum for CLP and/or regular SBA loans. The maximum interest rate of PLP loans is the rate permitted by applicable state and federal law. Lenders may use their own prime rate as a base for variable rate loans which may fluctuate as often as daily. There is no maximum spread restriction.

PLP lenders are selected based on their historical record with the Agency and are selected from the best-performing CLPs. They must have demonstrated a proficiency in processing and servicing SBA-guaranteed loans. The credit criteria for PLP loans in the same as that for the CLP and/or the Regular 7(a) program.

SPECIAL LOANS: Contract Loan Program

Contract loans are available only under SBA's guaranty program to assist small businesses in the short-term financing of the labor and material costs of a specific, assignable contract. This loan program does not have a revolving feature.

Eligible businesses are small construction, manufacturing and service contractors and subcontractors who provide a specific product or service under an assignable contract, who have been in operation for the preceding 12 months, and who meet SBA's other size and policy requirements. All applicants must be current on payroll taxes and have in operation a depository plan for the payment of future withholding taxes. Such a plan protects SBA and the participating lender from the Federal Tax Lien Act of 1966, which holds lenders liable for unpaid income taxes when loan proceeds are used for payroll purposes.

Loan proceeds may be used only to finance the labor and materials necessary to comply with the terms of the contract. The loan maturity cannot exceed 12 months from the date of first disbursement, except in cases of a large contract, which may be approved for up to 18 months. This is not a revolving fund but rather a loan to finance a specific contract.

Collateral will include an assignment of contract proceeds and may also include the pledge of other company assets and/or outside assets and secured personal guaranties.

Applicants can apply to the lender prior to or after a contract has been received. However, detailed information on the bid or contract must be available at the time of application.

Seasonal Line of Credit Program:

Seasonal line of credit loans are only available under SBA's guaranty program to finance the increased receivables and inventory of eligible small businesses arising from a seasonal upswing in business activity.

Eligible is any small business having a seasonal loan requirement which meets SBA's size and policy standards, which has been in business for the preceding 12 months, and which is unable to obtain financing without SBA's guaranty. This loan program does not have a revolving feature. The loan amount cannot exceed the amount necessary to overcome working capital deficiencies arising from the seasonal upswing in business activity.

The loan maturity cannot exceed 12 months from the date of first disbursement. The loan must be structured to be repaid from the company's cash flow in the shortest time possible. Except for agricultural enterprises, only one seasonal line of credit may be outstanding at any time, and each loan must be followed by an out-of-debt period of at least 30 days.

The interest rate is the same as for all SBA 7(a) guaranty loans.

SBA's guaranty fee is 1/4 of 1 percent of the guaranteed portion of the loan and is submitted with the loan application. An additional service fee of up to two percent may be charged by the lender when justified by extraordinary servicing requirements.

Collateral will generally include liens on all accounts receivable and inventory. Additional collateral, including the pledge of outside assets the personal guaranties, may also be required.

Export Revolving Line of Credit Program (ERLC):

Export revolving line of credit loans are available only under SBA's guaranty program to provide financial assistance to small business exporters. This program assists exporters in financing the manufacture or purchase of goods and services for export or for the development of a foreign market. This program has a revolving feature, whereby the borrower can make any number of withdrawals and repayments within the dollar limit and stated maturity period of the loan.

Eligible businesses are those which have been in operation for at least 12 months prior to filing an application (unless waived by Regional Office) and which meet SBA's other size and policy requirements. This program can be used by manufacturers, wholesalers and export management companies. Applicants must be current on all payroll taxes and have in operation a depository plan for the payment of future withholding taxes.

Loan proceeds can be used to finance the labor and materials needed to manufacture or purchase goods and services for sale overseas or to develop a foreign market, including such things as professional advice or assistance, foreign business travel and participation in trade shows. Proceeds may also be used to provide a manufacturer with the working capital necessary to perform on an export sales contract already secured. Funds may not be used to pay existing obligations or to purchase fixed assets.

The maturity of an ERLC is based on an applicant's business cycle, but cannot exceed 18 months.

Collateral requirements may include an assignment of contract proceeds, accounts receivable, bank letters of credit, other business assets and personal guarantees. Only collateral located in the United States is acceptable.

SBA's regular guaranty fees apply to ERLC loans except for those with maturities of 12 months or less, in which case the guaranty fee is 1/4 of 1 percent of the guaranteed portion of the loan. The lender may also charge the borrower a commitment bee of 1/4 of 1 percent of the loan (or a minimum of $200) after SBA approves the ERLC.

Small General Contractors Loan Program:

Loans to small general contractors are available under SBA's guaranty program to finance the construction or renovation of residential and commercial buildings for sale.

Eligible businesses are construction contractors and home builders whichmeet SBA size and policy standards.

The maturity cannot exceed 36 months plus a reasonable estimate of the construction or renovation period. Loan proceeds may be used solely for the direct expenses of acquisition, immediate construction and/or significant rehabilitation of the residential or commercial structures. Collateral must at least include a second lien on the property to be constructed or renovated.

Guaranteed Loans to Qualified Employee Trusts:

SBA provides financial assistance only under its guaranty program to eligible employee trusts to allow them to relend funds to an employer concern or to permit the employees to buy the employer concern.

Eligible employee trusts are those which meet SBA's size and policy requirements and which are part of a plan sponsored by their employer concern and qualified under either the Internal Revenue Code (as an Employee Stock Ownership Plan (ESOP)), or the Department of Labor (under the Employee Retirement Income Security Act).

Loan Proceeds may be used by the employee trust for:

Growth and Development Loans, whereby the trust relends loan proceeds to the employer by purchasing qualifying employer securities (not necessarily voting stock), or Change of Ownership Loans, whereby employees acquire controlling interest in the employer concern. Collateral will include the assets of the employer concern.

For more information about other SBA loan programs and financing opportunities, including the Handicapped Assistance Loan Program, visit the SBA's home page.