SBA 7a Term Loan Guaranty Program

SBA 7a Term Loan Guaranty Program

SBA 7a Term Loan Guaranty Program - Lending organizations are finding that groups that have traditionally had limited access to financing are a growing market. While the number of small businesses in the U.S. is growing about 8% per year, minority-owned small businesses are growing about 20% per

year, according to the latest Census Bureau data. The Center for Women's Business Research reports that from 1997 to 2004, the number of firms that are majority-owned by women increased by 17%, nearly twice the increase of all privately held firms.

To help meet the growing demand, the Small Business Administration's 7a loan-guarantee program, which provides backing on bank and nonbank small-business loans, guaranteed 30% more loans to African- and Asian-Americans, 28% more to Hispanics and 25% more to women in the year ended Sept. 30 than it did in fiscal 2003. And while federal antidiscrimination laws prevent banks from targeting specific minority groups for loans -- because all banks insured by the Federal Deposit Insurance Corp. must observe equal and fair lending laws -- some banks are reaching more minorities anyway.

To get around the rule, banks like Bank of America Corp. and Wells Fargo & Co. try to target minorities and women by offering outreach programs in underserved communities. But when it comes to the actual loan, all loan applicants must be treated as equals. At Bank of America, 40% of its SBA loans go to minority-owned businesses. Wells Fargo offers free multilingual business-development seminars at branches nationwide and has lent more than $22 billion to minority- and women-owned small businesses since 1995.

SBA 7a Term Loan Guaranty Program Defined - The U.S. Small Business Administration's 7a Term Loan Guaranty program provides loan guarantees to approved banks and approved lenders. In the event of default by the borrowing Small Business Concern (SBC), the SBA is willing to reimburse up to 90% of the loss that the lender would otherwise sustain. Consequently, lenders may be willing to accept a greater credit risk and grant more favorable terms than they might otherwise. SBA also has a revolving line of credit loan guaranty program but very few banks are willing to participate. SBCs that are poor credit risks or fail to clearly state their ability to repay the loan will probably be turned down.

For-profit Small Business Concerns (SBC) with a history of success in the same business for which the funds are to be used. They must have sufficient cash assets to assure a successful venture and sufficient collateral to liquidate in case of default. SBA defines the maximum size of the business by industry and is based upon ether gross revenues or number of employees. Most SBCs qualify. A few industry types are excluded from SBA programs. Start up businesses require more cash assets, collateral and more experienced ownership than existing, profitable SBCs.

SBA 7a Term Loan Guaranty Program