US Small Business Administration Acquisition Financing Program SBA 7a Program For Profit US Businesses Only Maximum loan amount of $5,000,000 Loan proceeds provided for business acquisitions, however can include: real estate, construction, equipment, inventory, working capital, closing fees and other intangible items.

7a Eligibility Size Standards (13 CFR ) The SBA sets certain guidelines that are used to determine who and who is not a small business. The current guideline is as follows: Size Standard Eligibility: Net profits after taxes must be less than $5.0 Million, net worth of company must be less than $15.0 Million.

Minimum SBA 7a Loan Qualifications Minimum of 10% non-borrowed cash equity required for all acquisition financing. Lender’s specific equity policy may be higher and can include seller notes to a certain extent. Most lenders locally require 15% or more equity from the buyer. Borrowed home equity may be used for buyer’s contribution so long as there is a secondary source of repayment for that debt service payment. The eligible entity must be an “owner occupied” business. Cannot be passive investment/developer financing. For profit applicants only. Non-profit entities are not eligible Business acquisition financing for loans of $500,000 or greater requires 25% equity injection when the tangibles being purchase are less than 51% of the purchase price. Majority of these structure situations include 10% seller notes with 10% coming from the buyer. Seller notes used for equity must be on 2 years “stand by” for repayment.

Standard SBA 7a Program Guaranty Fees The guaranty fee is the responsibility of the buyer. This fee, in most all cases, is paid out of pocket by the buyer and not counted toward the equity requirement in the loan structure. The lender does not earn any portion of this fee. Lender may be able to finance this fee using other collateral available with the applicant. »Maturity of 12 months or less =.25% »Maturity over 12 months for loan of $150,000 or less = 2% of the guaranteed portion. $150,000 X 2% = $3,000 fee »Loan amount of $150,001 - $700,000 = 3% of the guaranteed portion. $700,000 X 3% = $21,000 fee »Loan amount of $701,000 – 2,000,000 = 3.5% of guaranteed portion up to $1,000,000 PLUS 3.75% of the guaranteed portion over $1,000,000. Example: $1,500,000 gross loan amount. SBA 75% guaranteed portion – 1,125,000. $1,000,000 x 3.5% ($35,000) + $125,000 x 3.75% ($4,688) = $39,688 total fee.

Interest Rate & Amortization Rules Every lender offers interest rates based on their cost of funds and the amount of risk they associate with any given request. The SBA does not dictate the rate period or rate structure for the loan request. The SBA does have a guideline lenders must follow with regards to the “spread” over the index used for any given 7a loan. The lender cannot charge more than Prime/LIBOR % for a loan where the amortization is greater than 7 years. It should be noted that in the instance where the fixed rate period matches the amortization period for a request, the lender may charge a greater spread. That is determined by the lender following a set formula provided by the SBA. SBA amortization requirements follow the useful life of the asset allocation. Most all SBA business acquisition loans will have a 10 year amortization without a balloon payment condition. There is no prepayment penalty for business acquisition 7a loan with an amortization of 10 years. If real estate is involved and amortization is greater than 15 years there is a 3 year prepayment penalty (5%, 3%, 1%).

Please contact SBA Business Development Officer Rick Ricciardi at (303) or for more information or to discuss your SBA financing needs. Thank you