By Elizabeth Stewart, Esq.
If you are in search of financing to expand or start a small business, one excellent source is your local bank, where you should inquire about the State Small Business Credit Initiative, the Small Business Lending Fund and the Small Business Administration loan guarantee programs. Your local bank may be a participating lender in one or more of these programs.
SSBCI
The State Small Business Credit Initiative (“SSBCI”) was created by the Small Business Jobs Act of 2010 (the “Act”). The purpose of the SSBCI is to strengthen state programs that support lending to small businesses and small manufacturers. Each of the states (other than Wyoming and North Dakota) was allocated a portion of the $1.5 billion budget based on job loss statistics. Each state is expected to demonstrate that the amount of SSBCI capital it received was leveraged to generate ten times such amount in private capital (also known as the 10:1 private capital leverage ratio). Each state, typically through its economic development agency, uses SSBCI capital to fund its state small business programs, including collateral support programs, Capital Access Programs (CAPs), loan guarantee programs and venture capital programs. The government offers a list of states funded by SSBCI and their programs.
SBLF
The Small Business Lending Fund (“SBLF”) was also created by the Act. In 2011, the federal government invested over $4 billion in 332 community banks and community development loan funds (“CDLF”) to promote the making of commercial and industrial loans, nonfarm, nonresidential real estate loans, loans to finance agricultural production, and loans secured by farmland to businesses with $50 million or less in revenues. For community banks, the SBLF program decreases the dividend or interest rate payable to the federal government for its investment in the community banks based upon the banks’ increase in small business lending. For CDLFs, the SBLF Program provides access to low-cost capital to the non-profit CDLFs, which in turn plays a critical role in providing access to capital for small businesses in distressed communities. The terms of the loans will vary from institution to institution. For a list of the participating institutions.
SBA
The Small Business Administration (“SBA”) offers several loan programs. One of the most common is the 7(a) loan program, which is available to new and existing creditworthy businesses. Permissible uses of 7(a) proceeds include expansion, renovation, new construction, acquisition of land, buildings, fixtures, leasehold improvements and equipment, working capital, seasonal lines of credit, inventory and debt refinanced for compelling reasons. The federal government provides a limited guaranty of 75% to 85% of the 7(a) loans that are made by SBA approved lenders, which substantially reduces the exposure of the lenders as a result of non-performing loans. Generally, the maximum 7(a) loan amount is $5,000,000 and the loan term ranges generally from five to 25 years depending upon the use of proceeds. 7(a) loans provide long-term financing for a fixed maturity, without a balloon payment and generally without prepayment fees. Locate SBA approved lenders in your local area.
The transactional attorneys of Love and Long, L.L.P. assist businesses in achieving their financing goals. We also provide legal assistance to financial institutions. See a list of Love and Long’s practice areas.
