Lending Programs
The most visible elements of the SBA are the loan programs it administers. The SBA does not provide grants or direct loans with the exception of Disaster Relief Loans. Instead, the SBA guarantees against default certain portions of business loans made by banks and other lenders that conform to its guidelines.
The primary use of the programs is to make loans for longer repayment periods based in part upon looser underwriting criteria than normal commercial business loans, though these programs can enable owners with bad credit receive a loan. A business can qualify for the loan even if the yearly payment approximates previous year's profit. Most banks want annual payment for loans no more than two-thirds (2/3) of prior year's operating profits. Lower payments, longer terms and loosened criteria allow some businesses to borrow more money than otherwise.
One of the most popular uses of SBA loans is commercial mortgages on buildings occupied or to be occupied by small business. These programs are beneficial to small business because most bank programs frequently require larger down payments and/or have repayment terms requiring borrowers refinance every five years. They can be beneficial to the bank in that banks can reduce risk by taking a first-lien position for a smaller percentage of the project, then arranging for a SBA Certified Development Company to finance the remainder through a second-lien position.
Read more about this topic: Small Business Administration
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