SBA Funding for Green Business Plans
Several SBA loan programs exist for entrepreneurs. Information on some of the most utilized programs follow, with the SBAExpress loans a viable option for small businesses, including eco-entrepreneurs armed with a great green business plan.
Program parameters include:
The maximum loan amount is $350,000, and the maximum SBA guaranty is 90%. This is sufficient for many start-up green business plan or venture.
Lenders and borrowers can negotiate the interest rate with a local bank. Rates are often tied to the prime rate and may be fixed or variable, but they may not exceed the SBA maximum. Lenders may charge up to 6.5% over the prime rate for loans of $50,000 or less and up to 4.5% over the prime rate for loans over $50,000. The lender is permitted to use most of its own forms and procedures. The credit decision is made by the lender, and the SBA turnaround time is 36 hours or less.
The lender is not required to take collateral for loans up to $25,000. The Lender may use its existing collateral policy for loans over $25,000 and up to $150,000. For loans greater than $150,000, the lender must follow the SBA’s general collateral policy.
These loans are only available on a guaranty basis, meaning that they are provided by lenders who choose to structure their own loans by the SBA’s requirements and who apply and receive a guaranty from the SBA on a portion of the loan. [The SBA does not fully guaranty 7(a) loans.] The lender and the SBA share the risk that a borrower will not be able to repay the loan in full. The guaranty is a guarantee against payment default, but it does not cover imprudent decisions by the lender or misrepresentation by the borrower. Under the guaranty concept, commercial lenders make and administer the loans.
The business applies to a lender for financing. The lender decides whether to make the loan internally or whether the application has some weaknesses which, in its opinion, needs an SBA guaranty. The guaranty provided by the SBA is available only to the lender. It assures the lender that in the event the borrower does not repay his or her obligation and a payment default occurs, the Government will reimburse the lender for its loss, up to the percentage of the SBA’s guaranty. Under this program, the borrower remains obligated for the full amount due.
In order to receive a 7(a) loan, the applicant must first be eligible. The ability to make repayment from the cashflow of the business is a primary consideration in the SBA decision-making process. However, the borrower’s good character, management capability, collateral, and the owner’s equity contribution may weigh favorably in the decision. All owners of 20% or more are required to personally guarantee SBA loans.
All applicants must be eligible to be considered for a 7(a) loan. The eligibility requirements are designed to be as broad as possible in order to accommodate the widest diversity of financing needs. All businesses considered must meet SBA size standards, be for-profit, lack internal resources (business or personal) to provide the financing, and be able to demonstrate repayment capability. Special-purpose programs may have additional eligibility criteria. Eligibility factors for all 7(a) loans include size, type of business, use of proceeds, and the availability of funds from other sources.
The SBA must determine whether the principals of each applicant firm have historically demonstrated the willingness and ability to pay their debts and whether they have abided by the laws of their community. Toward this end, a “Statement of Personal History” is obtained from each principal.
Patriot Express Loans
The maximum loan amount is $500,000, and the maximum SBA guaranty is 85%. The interest rate may be fixed or variable, and lenders and borrowers can negotiate the rate. However, lenders may not charge more than 2.25% over the prime rate for loans of less than seven years, and 2.75% over prime for loans greater than seven years. Lenders may charge 1% more for loans of $50,000 or less and 2% more for loans of $25,000 or less.
Must meet standard SBA eligibility and be majority-owned or -controlled by: (a) a veteran (other than one who has been dishonorably discharged); (b) an active-duty military potential retiree who is within 24 months of separation, or a discharging active-duty member who is within 12 months of discharge (TAP eligible); (c) a reservist or National Guard member; or (d) a current spouse of above or spouse of a service member or veteran who died of a service-connected disability.
Revolving loans are allowed up to seven years with maturity extensions permitted at the outset. The lender uses mostly its own forms and procedures. The credit decision is made by the lender, and the SBA turnaround time is 36 hours or less. Lenders are not required to take collateral for loans up to $25,000, may use their existing collateral policy for loans over $25,000 up to $350,000, and must take available collateral for loans greater than $350,000.
We offer a free consultation to green business owners and entrepreneurs about their SBA options for their green business plan. Please contact us for more information.