Jerome Jones with the Small Business Development Center (SBDC) will talk in this episode about small

65392838 – sba loan application form with a pen on a desk with an approved stamp

business financing. Jerome spoke primarily about two SBA programs:

  • SBA  7A Loan Guarantee Program, done primarily by banks, which guarantees loss associated with a loan between 75-85% of the loan, and the;
  • SBA 504 Loan Program, done primarily through certified development companies. It is used primarily for real estate and large equipment.

Any legal business is eligible for the SBA Loan Guarantee Program with some exclusions including off-shore or speculative entities. A list is provided in the podcast.

There are fees associated with the 7A Program. These fees are structured and limited to the guaranteed portion:

  • Any loan under $150,000 has fees waived.
  • >$150,000 and <$700,000 has a 3% loan guarantee fee
  • >$750,000 has a 3.5% loan guarantee fee
  • >$1 million has an addition 0.25% loan guarantee fee added

The SBA 7A loan can be as long as 25 years.

Banks typically use SBA loans for small businesses.

The SBA 7A Loan Guarantee is multi-faceted.

  • Can use it for real estate, equipment, working capital, and lines of credit, etc. The bank is expected to do due diligence as it normally would. The guarantee simply provides added assurance, i.e., within the parameters of the loan guarantee if there was a loss the bank would only lose 15%
  • If the company is <2yrs in business or there’s been an entire change in management or the loan is for a building that is single use (difficult to convert) then the borrow must provide 15%
  • With the SBA 504 Loan Program (real estate and large equipment) is more of a participation loan rather than a guarantee. The bank does a loan for 50% of the appraised value, SBA does 40% (subordinate to the bank’s loan), and the borrower does 10%. The bank is over-collateralized and, thus, more comfortable.
  • The two loans may be used in conjunction, e.g., 7A Loan for working capital and 504 Loan for purchasing equipment.
  • Also, with the SBA 504 Loan one job must be created for every $65,000 of SBA money unless one is a small manufacturer – then its one job for every $100,000 of SBA 504 Loan money.
  • With the SBA 504 Loan the borrower must occupy 51% of the building on day 1. If new construction must occupy 51% and grow into 80% by year 10, starting growth within two years.
  • The terms for the SBA portion of the loan is fixed and can be either 10- (slightly lower interest rate) or 20 years.

SBA 504 Loan program is recommended for machinery & equipment with a useful life of at least 10 years.

Jerome lists required documentation when applying for either or both loans. He also provides an excellent recap at the end of the podcast.

Jeromes contact information is:

  • Future topics are discussed. Stay tuned!

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