NGCDC, INC. AND THE SBA(7A) LOAN GUARANTY PROGRAM

NGCDC coordinates with area private lenders on the SBA 7(A) Loan Guaranty Program through project referrals, by contracting as a 7(A) loan packager, and/or by packaging complementary loan components of a small business project (ie., SBA 504, NGRDC RLF).

The 7(A) Loan Guaranty Program is the SBA's primary loan program and guarantees major portions of private lender loans made to small businesses.  The 7(A) loan is directed at the small businesses unable to otherwise obtain financing on reasonable terms by reducing the risk to private lenders.  It does not have the interest rate and borrower equity injection advantages of the SBA 504 program, but it does have substantial versatility.  The 7(A) loan has broad eligibility requirements and credit criteria to accommodate a wide range of financing needs.

Generally, the borrower must contribute a reasonable cash equity injection as determined by the lender and SBA.  The balance is provided by the private lender and guaranteed by SBA within limits.

Uses and Loan Limits*

The 7(A) loan can be used for most any business purpose including:

• land or building acquisition;
• expansion, renovation, construction of facilities and leasehold improvements;
• machinery, equipment, fixtures, and furniture;
• working capital; and/or
• refinancing existing debt.

Terms, Interest Rate, and Fees*

The maturity of a 7(A) loan depends on the use of the proceeds:

• usually five to 10 years for working capital, and
• up to 25 years for fixed assets such as the purchase of or major renovation of real estate or purchase of equipment (not to exceed the useful life of the equipment).

The SBA charges the lender a fee for the loan guarantee which may be passed on to the borrower.  The fee is based on the maturity of the loan and the dollar amount which the SBA guarantees.  The minimum is 2%.  In addition, loans may be subject to a 0.5% annualized lender servicing fee applied to the outstanding balance of SBA's guaranteed portion of the loan.

NGCDC charges a packaging fee negotiated with the private lender and borrower which generally does not exceed 1.5% of the loan amount.  The fee is generally collectible only if the SBA approves the application and the loan is closed.

Collateral

Assets, to the extent that they are reasonably available, are required to adequately secure the loan.  Personal guarantees are required from all the principal owners of the business.  Liens on personal assets of the principals also may be required.

Eligibility

To be eligible, the business must be operated for profit and fall within the size standards set by the SBA based on number of employees during preceding 12 months or on sales averaged over the past 36 months:

• Manufacturing — from 500 to 1,500 employees
• Wholesaling — 100 employees
• Retail and Service — from $3.5 million to $13.5 million.
• Construction  — from $7.5 million to $17 million
• Agriculture — from $0.5 million to $3.5 million

Passive investment companies, non-profits, lending institutions, real estate development companies and some other enterprises are not eligible.

Information Needed for the Lender and SBA 7(A) Approval

• History of the business and description of the project
• Use of the loan proceeds
• Personal history form on all principals
• Current personal financial statements and tax records for previous 3 years for all principals
• Business financial statements and tax records for previous 3 years
• Current business financial statement
• Monthly cash flow projections for 2 years after project completion
• Financial projections for 2 years after project completion
• Names and financial statements of affiliates
• Resumes of principals and managers
• Schedule of debt financing for next year
• Copy of franchise agreement
• Schedule of previous government financing
• Resolution from the business' Board of Directors to borrow
• Copy of existing or proposed lease or purchase agreement
• Number of jobs created or retained or other objectives
• Appraisal on an as-completed basis
• Plans and specifications on construction, cost quotes on construction and equipment
• Collateral offered

The following generally describes the steps in the loan proposal and application process:

• Small business principal contacts the lender for a loan.
• Small business principal provides information required for evaluation by private lender.
• Private lender determines eligibility and feasibility of loan project with loan guaranty program (would provide needed business credit and risk reduction).
• Loan proposal is presented to lender Board of Directors for approval.
• Lender or loan packager such as NGCDC, Inc. packages loan application for the SBA guaranty program.
• SBA reviews the loan package and determines any terms and conditions necessary to approval.
• Upon SBA approval of loan guaranty, lender closes the loan.

The borrower makes payments to the private lender on the loan.  Periodic reports are provided by the lender to the SBA on the business and the loan.

Contact

For Additional Loan Program Information: Loan Program Coordinator,    
(706) 226-1110 or 272-2300, or ngcdc@ngcdc.org

*Uses, Loan Limits, Terms, Interest Rate, and Fees should be verified at time of application inquiry.