Other Aspects Of The SBA Loan Programs

Character Considerations
SBA must determine if the principals of each applicant firm have historically shown the willingness and ability to pay their debts and whether they abided by the laws of their community. The Agency must know if there are any factors which impact on these issues. Therefore, a "Statement of Personal History" is obtained from each principal.

In addition to credit and eligibility criteria, an applicant should be aware of the general types of terms and conditions they can expect if SBA is involved in the financial assistance. The specific terms of SBA loans are negotiated between an applicant and the participating financial institution, subject to the requirements of SBA. In general, the following provisions apply to all SBA 7(a) loans. However, certain Loan Programs or Lender Programs vary from these standards.

Maximum Loan Amounts
SBA’s 7(a) Loan Program has a maximum loan amount of $2 million dollars. SBA’s maximum exposure is $1 million. Thus, if a business receives an SBA guaranteed loan for $2 million, the maximum guaranty to the lender will be $1 million or 50 percent.

The Basic 7(A) Loan Program Maturity
Loan maturities are based on: the ability to repay, the purpose of the loan, and the useful life of the assets financed. Maximum loan maturities have been established: twenty-five (25) years for real estate and equipment and seven (7) years for working capital.

Interest Rates Applicable To Sba 7(A) Loans
Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums, which are tied to the Prime Rate. Interest rates may be fixed or variable. Fixed rate loans of $50,000 or more must not exceed Prime Plus 2. 25 percent if the maturity is less than 7 years, and Prime Plus 2.75 percent if the maturity is 7 years or more.

For loans between $25,000 and $50.000, maximum rates must not exceed Prime Plus 3.25 percent if the maturity is less than 7 years, and Prime Plus 3.75 percent if the maturity is 7 years or more.

For loans of $25,000 or less, the maximum interest rate must not exceed Prime Plus 4.25 percent if the maturity is less than 7 years, and Prime Plus 4.75 percent, if the maturity is 7 years or more.

Variable rate loans may be pegged to either the lowest prime rate or the SBA optional peg rate. The optional peg rate is a weighted average of rates the federal government pays for loans with maturities similar to the average SBA loan. It is calculated quarterly and published in the "Federal Register." The lender and the borrower negotiate the amount of the spread which will be added to the base rate. An adjustment period is selected which will identify the frequency at which the note rate will change. It must be no more often than monthly and must be consistent, (e.g., monthly, quarterly, semiannually, annually or any other defined, consistent period).