Small Business Financing: Small Business Association (SBA) non-direct Loans

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Assessing feasibility and loan absorption and repayment capacity at a Small Business

  • Likelihood of market expansion
  • Assessment of product expansion
  • Profit Margin before financing
  • Debt to equity ratio
  • Permanent versus seasonal cash flow
  • Asset conversion cycle
  • Maturity matching
  • Leverage and breakeven

Life cycle of a small business – where do you fit in and what do you need

Bankable small businesses – need wholesale funds, lower interest rates, and longer payment terms

  1. Established business track record
  2. Established management systems
  3. Significant credit track record
  4. Sufficient collateral

Near Bankable small businesses – need first time access to banking system and the ability to prepare a bankable document – banks needs comfort factor through a credit guarantee program

  1. Established business track record
  2. Established management systems
  3. Absence of significant credit track record
  4. Absence of sufficient or subpar and inferior collateral

Viable but Pre-bankable small businesses – help with formal financing, lower rates compared with informal sector and build a credit history and credit track record

  1. Missing established business track record
  2. Missing established management systems
  3. Absence of significant credit track record
  4. Absence of sufficient or subpar and inferior collateral

Small Business Association non-direct loans – The North American model






  • Maximum loan amount of $350,000
  • Lenders and borrowers can negotiate the interest rate. Lenders may charge up to 6.5% over prime for loans of $50,000 or less, and up to 4.5% over prime for loans over $50,000.
  • SBAExpress allows revolving loans up to 7 years with maturity extensions permitted at the outset.
  • Turnaround time is within 36 hours

7 (a)

Loan Guarantee 

  • Serves as the SBA’s primary business loan program to help qualified small businesses obtain financing when they might not be eligible for business loans through normal lending channels. It is also the agency’s most flexible business loan program, since financing under this program can be guaranteed for a variety of general business purposes.
  • Loan proceeds can be used for most sound business purposes including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets. Purchase of real estate to house the business operations, construction, renovation or leasehold improvements, acquisition of furniture, fixtures, machinery and equipment, purchase of inventory and working capital.

504 loan

Certified Development Company (CDC)

  • Provides long-term, fixed-rate financing to small businesses for significant real estate, machinery or equipment, expansion or modernization. Typically a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a CDC (funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower.
  • The maximum SBA debenture is $1,500,000 when meeting the job creation criteria or a community development goal. Generally, a business must create or retain one job for every $50,000 provided by the SBA.

Patriot Express

Loan initiative program

  • Patriot Express Initiative has new and enhanced programs and services for veterans and members of the military community wanting to establish or expand small businesses.
  • Start with Self Assessment by using the checklist
  • Features fastest turnaround time for loan approvals.
  • Can be used for most business purposes, including start-up, expansion, equipment purchases, working capital, inventory or business-occupied real-estate purchases.
  • Features SBA’s lowest interest rates for business loans, generally 2.25 to 4.75 percent over prime depending on the size and maturity of the loan.



  • Provides short-term loans of up to $35,000 to small businesses for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Proceeds cannot be used to pay existing debts or to purchase real estate. The SBA makes or guarantees a loan to an intermediary, who in turn, makes the microloan to the applicant. These organizations also provide management and technical assistance.

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