Lowdoc program

In June, the SBA rolled out the program nationally. Mike Stamler, an SBA spokesman, said the ease of the documentation process has created a willingness among lenders to use the agency's loan programs. The SBA's statistics show the program is achieving its goal of reaching the smallest borrowers. For Rodney Martin, director of the San Antonio district, the LowDoc program has been successful in other ways as well.

Since a greater percentage is guaranteed, the loans require more funding. Still, Ms. Randle said the organization is pleased with the program's effectiveness.

Community Banking. Credit unions. Log In. Follow Us In Real Time twitter facebook linkedin. EDT 1 Min Read. The interest rates on SBA-guaranteed loans are negotiated between the borrowing business and the lending institution, but they are subject to SBA-imposed rate ceilings, which are linked to the prime rate. Interest rates on SBA loans can be either fixed or variable.

According to the SBA, fixed rate loans are not allowed to exceed the prime rate plus 2. If the maturity of the loan is seven years or more, however, the rate can be boosted to the prime rate plus 2. Variable rate loans, notes the SBA, may be pegged to either the SBA optional peg rate or the lowest prime rate the optional peg rate is a weighed average of rates that the federal government pays for loans with maturities similar to the average SBA loan.

Under variable rate loan plans, the lender and borrower negotiate the amount of the spread to be added to the base interest rate. Such agreements also provide for regular adjustment periods wherein the note rate can be changed as needed. Some agreements call for monthly adjustment periods, while others provide for quarterly, semiannual, or annual adjustments. The Small Business Administration defines businesses eligible for SBA loans as those that: operate for profit; are engaged in, or propose to do business in, the United States or its possessions; have reasonable owner equity to invest; and use alternative financial resources such as personal assets first.

In addition, to secure SBA assistance, a company must qualify as a "small business" under the terms of the Small Business Act. That legislation defined an eligible small business as one that is independently owned and operated and not dominant in its industry. Since the passage of the Small Business Act, the SBA has developed size standards for every industry to gauge whether a company qualifies as a "small business" or not. Size standards are arranged by Standard Industrial Classification SIC code, but in general, the following guidelines apply for major industry groups:.

The Small Business Administration also considers other factors in determining whether an establishment qualifies as a small business. For example, if a business is affiliated with another company, the owners must determine the primary business activity of both the affiliated group and the applicant business before submitting a request for SBA assistance. If the applicant business and the affiliated group do not both meet the SBA's size standards for their primary business activities, then the loan request will not be considered.

The SBA also has a number of eligibility rules that apply to specific kinds of businesses. Franchisees, for example, are often favored by the SBA because their businesses enjoy a higher success rate than do other businesses. Nonetheless, SBA officials will examine a franchisee's franchise agreement closely before extending any loan guarantees to him or her. If the officials decide that the franchisor wields so much control over the franchise's operations that the franchisee is basically an employee, then the SBA will turn down the request.

Other types of businesses, such as those in agriculture or the fishing industry, are free to apply for SBA assistance, but they are directed to first look to government agencies that deal directly with their industries.

Farmers, for example, are supposed to first explore loan programs available through the Farmers Home Administration FHA , while some members of the fishing industry--depending on the nature of their need--should first consult with the National Marine Fisheries Service NMFS.

The SBA also notes that some businesses are disqualified from consideration from the outset by the industry in which they operate. Businesses that operate in gambling, investment, or media-related fields, for example, are all ineligible for SBA loans. Finally, the SBA notes that loans that they guarantee are only to be used for specific business purposes, including "the 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.

The chief challenge of any business seeking to secure a loan from the Small Business Administration is to convince the SBA that it has the ability to be successful in its chosen field. To do so, the small business owner should be equipped with a complete understanding of his or her operation whether existing or proposed and the benefits that a loan, if granted, will bring to the business.

Of course, it is also necessary to effectively articulate this information to the SBA. The terms of an SBA guaranteed loan are generally set by the private lender according to its own loan criteria. The SBA does, however, forbid borrower charges in addition to the SBA guarantee fee maximum 2 percent and caps are set on maximum interest rates.

The caps vary according to the amount of the loan.