A look at the SBA's lending programs.

In 1953 the Small Business Administration (SBA) was formed by Congress to "aid, counsel, assist and protect the interests of small business ..." Fifty-one years later, the SBA has assisted over 20 million small businesses through its various programs. SBA's business loan portfolio is the largest financial backer of businesses in the U.S.

VEDC in partnership with SBA's L.A. District Office operate the North L.A. SBDC with offices in Santa Barbara, Oxnard, Van Nuys, Glendale, Santa Monica, and South L.A. Our SBDC assist over 3,000 businesses annually and also help finance businesses through SBA's loan programs.

Additionally, VEDC's lending division has been operating an SBA Microloan program since 1998. Over $2.9 million has been lent to 210 small business owners through this program.

The following details the different loan products offered by SBA:

7(a) Loan Program

The 7(a) program is SBA's largest lending vehicle. It provides loan guarantees to commercial lending institutions for loans that do not meet the bank's normal credit standards. The loan guarantee provides the bank with the incentive to lend to a business that otherwise would not of qualified for the loan.

This program is SBA's most flexible loan program as it allows businesses to lend money for most business purposes including equipment acquisition, real estate, leasehold improvements and working capital. All stages of businesses are encouraged to apply from start-ups to mature businesses.

Typically, the maximum loan amount is $2 million however due to this years budgetary constraints in the federal government, the loan amount has been reduced to $750,000 in order to maximize the number of business assisted. The 7(a) loans have maturities of 10 years for working capital loans and up to 25 years for real estate and fixed assets.

504 Loan Program

The 504 program provides financing for the purpose of real estate or fixed asset acquisition. The structure of this loan programs requires a senior lender to provide up to 50% of the total financing need while the borrower is required to contribute at least 10% of the total financing need. The 504 program will finance the junior lien at a maximum of 40%.

The 504 financing is obtained through a Certified Development Company (CDC) which is 100% financed by an SBA guaranteed debenture. The CDC is usually a private, non-profit corporation established to promote economic development in its region.

This financing ideal for small business owners that are attempting to expand into their own facility and are limited by the amount of capital required by most commercial lenders. The loans are based on market rates and 10 to 20 year maturities are available and the owner's personal guaranties are required.

Loan Prequalification Program

The pre-qual program was established to assist minority, women and veteran-owned business in qualifying for financing. This program is operated under the guidelines of the 7(a) program an it allows SBA to "pre-qualify" a loan for an SBA guarantee prior to having a lender consider it. When the loan is pre-qualified, it provides the request the additional backing that may be needed in order for the bank to finance the business.

The program has a maximum loan amount of $250,000. Its credit parameters vary as approval is reliant on the borrower's credit, experience, and character and less on assets as is typical in SBA's 7(a) credit approval.

Microloan Program

The SBA also provides businesses with access to microloans, loans of up to $35,000. This program is funded by SBA but delivered by intermediaries, which are typically non profit organizations. The intermediary is responsible to lend the funds to small business owners seeking financing for working capital, asset acquisition, and inventory.

The microloan is ideal for the small business owner, which is seeking a small amount of capital to start or expand its business. In addition, the small business owner also gets the benefit of technical assistance, which is delivered by the intermediary.

Los Angeles is served by the SBA Los Angeles District Office, which also covers Santa Barbara and Ventura Counties. It has been the #1 office nationwide in terms of lending volume for the past seven years.

Vladimir Victorio is Director of Lending for the VEDC. For more information about any of these SBA Loan Products contact VEDC at 818-907-9977 or go to www.vedc.org.