The SBA Loan Pre-qualification Program helps business owners like you prepare applications. If the application is approved, the owner will be provided with a commitment letter for an SBA guarantee. The amount guaranteed will vary based on the amount of the loan; loans up to $150,000 can receive 85% guarantees, while anything above can receive up to 75%. The maximum guaranteed amount overall is $250,000. This program also has the added perquisite of expediting the bank or lending institution’s consideration of the borrower’s application for his or her loan.
The business owner will approach a third party, such as a Small Business Development Center (SBDC). This organization will help the borrower ready a business plan and the application for the program. They will check the applicant’s credit and analyze the loan before submitting all necessary documentation to the SBA. If the prospective recipient is approved, the business owner will receive a letter of pre-qualification. This letter will declare the terms and intent for the guarantee of the loan. With this letter in hand, the business owner can then approach lenders and apply for loans with this guarantee as an added bargaining chip that will increase the likelihood of approval. The SBDC may help the business owner find banks and creditors that would be willing to work with this program. Some SBDCs charge a fee for their assistance with the program.
Interest rates are typically negotiated between the business owner and the lending institution. The interest rate is linked to the prime rate, and cannot exceed 2.25% above prime for loans under 7 years and 2.75% above prime for lengthier periods. The repayment period varies depending on ability to repay and how the proceeds are utilized. There may be additional charges for higher amounts, up to 1% for amounts up to $50,000. The rate can be static or mutable. Unlike with other loan programs, applicants are usually not refused for a lack of collateral alone. Loans usually are secured, however, with an assurance of whatever assets are available, as well as the owner’s personal guarantee of the principals.
The loan pre-qualification program can be an excellent prospect for businesses that wish to shop around lending institutions to get the best terms that suit their needs, without the hassle and inconvenience of being under qualified. If you think this program may help your business, consider contacting a Small Business Development Center to help you get started.