Frequently Asked Questions # 4

4. What is a SBA Loan and how do I get one?

A SBA Loan is a loan that has been guaranteed by the US Small Business Administration (SBA). The guarantee assures the lender that it will be repaid a portion of the money it loans even if the borrower fails to repay it. The SBA will guarantee up to 85% on loans of $150,000 or less and up to 75% on loans over $150,000. With few exceptions, the maximum SBA guarantee is $2 million.

SBA is a federal agency created in 1953 to help America's entrepreneurs form successful small businesses. One way SBA helps existing and potential small business owners is when owners obtain financing from a bank. The SBA does not administer grants or provide direct funding to individuals or businesses. The SBA does not provide low interest loans.

As a business owner, you will make a request to a lender (usually your local bank) for funds needed for your business plans. The lender will evaluate your request and decide whether it can make the loan to you on its own. If the lender feels the request has merit but cannot make the loan without additional support, then the lender can request a SBA guarantee.

Not all banks participate in the SBA loan guarantee program, so don't hesitate to ask whether the bank makes SBA loans. So, the SBA loan is requested by your lender. Although you are the borrower, SBA considers its applicant to be the lender to whom it provides the guarantee. The SBA guarantee enables the lender to make a loan that it would not otherwise provide.

In addition to getting a loan that you would not otherwise receive, SBA-guaranteed loans usually can be borrowed for a longer time and cannot be set up with a balloon payment due at maturity. This assures you of having long-term debt for your business needs that you repay in equal installments. The SBA offers a free loan workshop that is held on the first and third Mondays of every month at 2120 Riverfront Drive, Suite 100, in Little Rock.

The SBA does not lend directly to borrowers except through their Disaster Assistance program. The program has specific criteria that need to be met and is available only in those areas that have been declared federal disaster areas for some reason. For Arkansas, the program is administered out of the SBA's Disaster Area Office in Fort Worth, Texas, and individuals considering applying for a Disaster Loan need to contact the Fort Worth Office directly at (800) 366-6303 or (817) 684-5600 or www.sba.gov/disaster.

For more information on the services offered by the SBA, log on to their website at www.sba.gov or contact the Arkansas District Office at (501) 324-7379.

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