Without an SBA-backed loan, Heartland Fabrication & Machine might not be in business today.
The Kansas City-based company builds custom metal and plastic components for manufacturers in several industries. Business today is thriving as customers from across the country turn to owner Mike Hudson and his team for help.
In 2003, though, Heartland was dealing with a crisis. Steel prices had skyrocketed, and companies like Hudson’s were forced to bear the extra expense. Heartland came perilously close to going out of business.
Fortunately, Hudson was able to secure an SBA-backed loan through UMB. Loan guarantees are one of the most important services the U.S. Small Business Administration provides. Thanks to the SBA’s support, bankers are more likely to provide financing to small businesses that might not be “bankable” yet.
“It really helped me back then,” Hudson said. “For one, we were a really young company. I wasn’t really ‘loan-able.’”
Generally speaking, the SBA doesn’t lend money directly to small businesses. Rather, it promises a lender that, should a small business default on a loan, the SBA will step in and pay off a percentage of the loan amount. The size of that guarantee depends on the type of loan and its size.
7(a) Loans
The 7(a) loans are the most common kind of SBA-backed loan, and they can be used for general business purposes. The maximum loan amount is $5 million. The SBA guarantees up to 85 percent of loans up to $150,000. The guarantee is 75 percent for anything more than that. In most cases, terms can’t exceed 25 years for real estate and fixed assets, or 10 years for other uses.
The SBA and its partners also offer a variety of special 7(a) loans for companies in different situations.
CAPLines // Short-term and working capital. The maximum amount is $5 million.
Community Advantage // A relatively new program for small businesses in underserved communities. The maximum amount is $250,000.
Export Express // Financing for small business exports. The maximum amount is $500,000, and loans are usually approved within 36 hours.
Export Working Capital (EWCP) // Used to fund export transactions. The maximum amount is $5 million.
SBA Express // Loans worth up to $350,000, with an SBA guarantee of 50 percent. Approval time is usually within 36 hours.
504 Loans
The 504 program is the SBA’s other major lending effort. These loans are strictly for real estate, buildings, machinery and other large fixed assets. (Using the funds for working capital or real-estate speculation is prohibited.) Unlike 7(a) loans, 504s are made available through Certified Development Companies (CDCs) only. In most cases, the maximum amount of the SBA debenture is $5 million. Terms usually are 10 and 20 years.
Microlending
Microloans are geared to the smallest businesses. The maximum amount is $50,000, though the average loan size is closer to $8,000. Rates tend to run between 8 and 13 percent, and borrowers have up to six years to repay the loan. Justine PETERSEN (www.justinepetersen.org) oversees the local microloan program.
Disasters
The SBA will make loans directly to borrowers in cases of government-declared disasters. Many companies and nonprofits can seek Business Physical Disaster Loans worth up to $2 million to aid in recovery. Economic Injury Disaster Loans, also worth up to $2 million, are available for working capital.
The SBA maintains a list of lenders who are experienced in handling SBA-backed loans. Visit tinyurl.com/l4sf4yr to view it online, or call (816) 426-4900 for more information.
