2. SBA’s Role in Providing Financial Assistance to America’s Small
The U.S. Small Business Administration (SBA) is an independent Agency of the Executive Branch of the
Federal Government. It is charged with the responsibility of providing four primary areas of assistance to
American Small Business. These are: Advocacy, Management, Procurement, and Financial Assistance.
Financial Assistance is delivered primarily through SBA’s Investment programs, Business Loan Programs,
Disaster Loan Programs, and Bonding for Contractors.
SBA’s Business Loan Programs
SBA administers three separate, but equally important loan programs. SBA sets the guidelines for the
loans while SBA’s partners (Lenders, Community Development Organizations, and Microlending
Institutions) make the loans to small businesses. SBA backs those loans with a guaranty that will
eliminate some of the risk to the lending partners. The Agency's Loan guaranty requirements and
practices can change however as the Government alters its fiscal policy and priorities to meet current
economic conditions. Therefore, past policy cannot always be relied upon when seeking assistance in
Federal appropriations are available to the SBA to provide guarantees on loans structured under the
Agency's requirements. With a loan guaranty, the actual funds are provided by independent lenders who
receive the full faith and credit backing of the Federal Government on a portion of the loan they make to
The loan guaranty which SBA provides transfers the risk of borrower non-payment, up to the amount of
the guaranty, from the lender to SBA. Therefore, when a business applies for an SBA Loan, they are
actually applying for a commercial loan, structured according to SBA requirements, which receives an
In a variation of this concept, community development organizations can get the Government's full
backing on their loan to finance a portion of the overall financing needs of an applicant small business.
SBA’s Investment Programs
In 1958 Congress created The Small Business Investment Company (SBIC) program. SBICs, licensed by
the Small Business Administration, are privately owned and managed investment firms. They are
participants in a vital partnership between government and the private sector economy. With their own
capital and with funds borrowed at favorable rates through the Federal Government, SBICs provide
venture capital to small independent businesses, both new and already established.
All SBICs are profit-motivated businesses. A major incentive for SBICs to invest in small businesses is the
chance to share in the success of the small business if it grows and prospers.
SBA’s Bonding Programs
The Surety Bond Guarantee (SBG) Program was developed to provide small and minority contractors
with contracting opportunities for which they would not otherwise bid. The U.S. Small Business
Administration (SBA) can guarantee bonds for contracts up to $2 million, covering bid, performance and
payment bonds for small and emerging contractors who cannot obtain surety bonds through regular
SBA's guarantee gives sureties an incentive to provide bonding for eligible contractors, and thereby
strengthens a contractor's ability to obtain bonding and greater access to contracting opportunities. A
surety guarantee, an agreement between a surety and the SBA, provides that SBA will assume a
predetermined percentage of loss in the event the contractor should breach the terms of the contract.
3. Financing Basics
While poor management is cited most frequently as the reason businesses fail, inadequate or ill-timed
financing is a close second. Whether you're starting a business or expanding one, sufficient ready capital
is essential. But it is not enough to simply have sufficient financing; knowledge and planning are required
to manage it well. These qualities ensure that entrepreneurs avoid common mistakes like securing the
wrong type of financing, miscalculating the amount required, or underestimating the cost of borrowing
Before inquiring about financing, ask yourself the following:
• Do you need more capital or can you manage existing cash flow more effectively?
• How do you define your need? Do you need money to expand or as a cushion against risk?
• How urgent is your need? You can obtain the best terms when you anticipate your needs rather
than looking for money under pressure.
• How great are your risks? All businessess carry risks, and the degree of risk will affect cost and
available financing alternatives.
• In what state of development is the business? Needs are most critical during transitional stages.
• For what purposes will the capital be used? Any lender will require that capital be requested for
very specific needs.
• What is the state of your industry? Depressed, stable, or growth conditions require different
approaches to money needs and sources. Businesses that prosper while others are in decline
will often receive better funding terms.
• Is your business seasonal or cyclical? Seasonal needs for financing generally are short term.
Loans advanced for cyclical industries such as construction are designed to support a business
through depressed periods.
• How strong is your management team? Management is the most important element assessed by
• Perhaps most importantly, how does your need for financing mesh with your business plan? If
you don't have a business plan, make writing one your first priority. All capital sources will want
to see your for the start-up and growth of your business.
Not All Money Is the Same
There are two types of financing: equity and debt financing. When looking for money, you must consider
your company's debt-to-equity ratio - the relation between dollars you've borrowed and dollars you've
invested in your business. The more money owners have invested in their business, the easier it is to
If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your
company has a high proportion of debt to equity, experts advise that you should increase your ownership
capital (equity investment) for additional funds. That way you won't be over-leveraged to the point of
jeopardizing your company's survival.
Most small or growth-stage businesses use limited equity financing. As with debt financing, additional
equity often comes from non-professional investors such as friends, relatives, employees, customers, or
industry colleagues. However, the most common source of professional equity funding comes from
venture capitalists. These are institutional risk takers and may be groups of wealthy individuals,
government-assisted sources, or major financial institutions. Most specialize in one or a few closely
related industries. The high-tech industry of California's Silicon Valley is a well-known example of
Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest
their money, but they most often prefer three-to-five-year old companies with the potential to become
major regional or national concerns and return higher-than-average profits to their shareholders. Venture
capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The
possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or
innovative advantage, and industry growth are also major concerns.
Different venture capitalists have different approaches to management of the business in which they
invest. They generally prefer to influence a business passively, but will react when a business does not
perform as expected and may insist on changes in management or strategy. Relinquishing some of the
decision-making and some of the potential for profits are the main disadvantages of equity financing.
You may contact these investors directly, although they typically make their investments through referrals.
The SBA also licenses Small Business Investment Companies (SBICs) and Minority Enterprise Small
Business Investment companies (MSBIs), which offer equity financing. Apple Computer, Federal Express
and Nike Shoes received financing from SBICs at critical stages of their growth.
Raising Money through Equity Investments - Inc. Magazine
4. By visiting the SBA website you can click on the links to review information concerning
Financial Statements. However, a great compliment to this section of the Financing piece
of starting a business would be my notes on Accounting.
Eligibility & Preparation
5. CREDIT FACTORS
CREDIT FACTORS A POTENTIAL BORROWER SHOULD KNOW
To determine if you qualify for SBA's financial assistance, you should first understand some basic credit
factors that apply to all loan requests. Every application needs positive credit merits to be approved.
These are the same credit factors a lender will review and analyze before deciding whether to internally
approve your loan application, seek a guaranty from SBA to support their loan to you, or decline your
application all together.
1. EQUITY INVESTMENT
Business loan applicants must have a reasonable amount invested in their business. This ensures that,
when combined with borrowed funds, the business can operate on a sound basis. There will be a careful
examination of the debt-to- worth ratio of the applicant to understand how much money
the lender is being asked to lend (debt) in relation to how much the owner(s) have invested (worth).
Owners invest either assets that are applicable to the operation of the business and/or cash which can be
used to acquire such assets. The value of invested assets should be substantiated by invoices or
appraisals for start-up businesses, or current financial statements for existing businesses.
Strong equity with a manageable debt level provide financial resiliency to help a firm weather periods of
operational adversity. Minimal or non-existent equity makes a business susceptible to miscalculation and
thereby increases the risk of default on -- failing to repay -- borrowed funds. Strong equity ensures the
owner(s) remains committed to the business. Sufficient equity is particularly important for
new business. Weak equity makes a lender more hesitant to provide any financial assistance. However,
low (not non- existent) equity in relation to existing and projected debt -- the loan -- can be overcome with
a strong showing in all the other credit factors.
Determining whether a company's level of debt is appropriate in relation to its equity requires analysis of
the company's expected earnings and the viability and variability of these earnings. The stronger the
support for projected profits, the greater the likelihood the loan will be approved. Applications with high
debt, low equity, and unsupported projections are prime candidates for loan denial.
2. EARNINGS REQUIREMENTS
Financial obligations are paid with cash, not profits. When cash outflow exceeds cash inflow for an
extended period of time, a business cannot continue to operate. As a result, cash management is
extremely important. In order to adequately support a company's operation, cash must be at
the right place, at the right time and in the right amount.
A company must be able to meet all its debt payments, not just its loan payments, as they come due.
Applicants are generally required to provide a report on when their income will become cash and when
their expenses must be paid. This report is usually in the form of a cash flow projection,
broken down on a monthly basis, and covering the first annual period after the loan is received.
When the projections are for either a new business or an existing business with a significant (20% plus)
difference in performance, the applicant should write down all assumptions which went into the
estimations of both revenues and expenses and provide these assumptions as part of the application.
All SBA loans must be able to reasonably demonstrate the "ability to repay" the intended obligation from
the business operation. For an existing business wanting to buy a building where the mortgage payment
will not exceed historical rent, the process is relatively easy. In this case, the funds used to pay the rent
can now be used to pay the mortgage. However, for a new or expanding business with
anticipated revenues and expenses exceeding past performance, the necessity for the lender to
understand all the assumptions on how these revenues will be generated is paramount to loan approval.
3. WORKING CAPITAL
Working capital is defined as the excess of current assets over current liabilities.
Current assets are the most liquid and most easily convertible to cash, of all assets. Current liabilities are
obligations due within one year. Therefore, working capital measures what is available to pay a
company's current debts. It also represents the cushion or margin of protection a company can give their
short term creditors.
Working capital is essential for a company to meet its continuous operational needs. Its adequacy
influences the firm's ability to meet its trade and short-term debt obligations, as well as to remain
6. Applying for a Loan
When applying for a loan, you must prepare a written loan proposal. Make your best presentation in the
initial loan proposal and application; you may not get a second opportunity.
Always begin your proposal with a cover letter or executive summary. Clearly and briefly explain who you
are, your business background, the nature of your business, the amount and purpose of your loan
request, your requested terms of repayment, how the funds will benefit your business, and how you will
repay the loan. Keep this cover page simple and direct.
Many different loan proposal formats are possible. You may want to contact your commercial lender to
determine which format is best for you. When writing your proposal, don't assume the reader is familiar
with your industry or your individual business. Always include industry-specific details so your reader can
understand how your particular business is run and what industry trends affect it.
Description of Business:
Provide a written description of your business, including the following information:
• Type of organization
• Date of information
• Product or service
• Brief history
• Proposed Future Operation
Management Experience: Resumes of each owner and key management members.
Personal Financial Statements: SBA requires financial statements for all principal owners (20% or
more) and guarantors. Financial statements should not be older than 90 days. Make certain that you
attach a copy of last year's federal income tax return to the financial statement.
Loan Repayment: Provide a brief written statement indicating how the loan will be repaid, including
repayment sources and time requirements. Cash-flow schedules, budgets, and other appropriate
information should support this statement.
Existing Business: Provide financial statements for at least the last three years, plus a current dated
statement (no older than 90 days) including balance sheets, profit & loss statements, and a reconciliation
of net worth. Aging of accounts payable and accounts receivables should be included, as well as a
schedule of term debt. Other balance sheet items of significant value contained in the most recent
statement should be explained.
Proposed Business: Provide a pro-forma balance sheet reflecting sources and uses of both equity and
Projections: Provide a projection of future operations for at least one year or until positive cash flow can
be shown. Include earnings, expenses, and reasoning for these estimates. The projections should be in
profit & loss format. Explain assumptions used if different from trend or industry standards and support
your projected figures with clear, documentable explanations.
Other Items As They Apply:
Lease (copies of proposal)
Articles of Incorporation
Copies of Licenses
Letters of Reference
Letters of Intent
Collateral: List real property and other assets to be held as collateral. Few financial institutions will
provide non-collateral based loans. All loans should have at least two identifiable sources of repayment.
The first source is ordinarily cash flow generated from profitable operations of the business. The second
source is usually collateral pledged to secure the loan.
The 5 C's of Credit
7. Borrowing Money
Borrowing money is one of the most common sources of funding for a small business, but obtaining a loan isn't
always easy. Before you approach your banker for a loan, it is a good idea to understand as much as you can
about the factors the bank will evaluate when they consider making you a loan. This discussion outlines some of
the key factors a bank uses to analyze a potential borrower. Also included is a self-assessment checklist at the
end of this section for you to complete.
KEY POINTS TO CONSIDER
Let's begin by exploring some of the key points your banker will review:
1. Ability to Repay/Capacity
The ability to repay must be justified in your loan package. Banks want to see two sources of repayment --
cashflow from the business, plus a secondary source such as collateral. In order to analyze the cash flow of the
business, the lender will review the business's past financial statements. Generally, banks feel most comfortable
dealing with a business that has been in existence for a number of years because they have a financial track
record. If the business has consistently made a profit and that profit can cover the payment of additional debt,
then it is likely that the loan will be approved. If however, the business has been operating marginally and now
has a new opportunity to grow or if that business is a start-up, then it is necessary to prepare a thorough loan
package with detailed explanation addressing how the business will be able to repay the loan.
2. Credit History
One of the first things a bank will determine when a person/business requests a loan is whether their personal
and business credit is good. Therefore before you go to the bank, or even start the process of preparing a loan
request, you want to make sure your credit is good.
First get your personal credit report. You can obtain a report by calling TransUnion, Equifax, TRW or another
credit bureau. It is important that you initiate this step well in advance of seeking a loan. Personal credit reports
may contain errors or be out of date. In many cases, people find that they paid off a bill but that it has not been
recorded on their credit report. It can take 3 to 4 weeks for this error to be corrected -- and it is up to you to see
that this happens. You want to make sure that when the bank pulls your credit report that all the errors have
been corrected and your history is up to date.
Once you obtain your credit report, how do you know what it says? Many people receive their credit reports yet
have no idea what the strange numbers signify. The following should help in interpreting and checking your
personal credit report.
First, check your name, social security number and address at the top of the page. Make sure these are correct.
There are people who have found that they have credit information from another person because of mistakes in
their identification information.
On the rest of your credit report you will see a list of all the credit you have obtained in the past - credit cards,
mortgages, student loans, etc. Each credit will be listed individually with information on how you paid that credit.
Any credit where you have had a problem in paying will be listed towards the top of the list. These are the
credits that my affect your ability to obtain a loan.
If you have been late by a month on an occasional payment, this probably will not adversely affect your credit.
However, if you are continuously late in paying your credit, have a credit that was never paid and charged off,
have a judgment against you, or have declared bankruptcy in the last 7 years, it is likely that you will have
difficulty in obtaining a loan.
In some cases, a person has had a period of bad credit based on a divorce, medical crisis, or some other
significant event. If you can show that your credit was good before and after this event and that you have tried to
pay back those debts incurred in the period of bad credit, you should be able to obtain a loan. It is best if you
write an explanation of your credit problems and how you have rectified them and attach this to your credit
report in your loan package.
Each credit bureau has a slightly different way of presenting your credit information. You can get specific
information on "how to read the report" form the appropriate company, but here's a few tips to get you started:
In the last few years TRW has prepared credit reports with words and not numbers. Good credits should read
"Never Late", "Paid as Agreed". Poor credits will read as
On the right side of the page on the credit report are number and letter combinations. "I" means installment
credit. "R" means revolving credit. The key information is in the numbers. A "1" means perfect credit since you
have always paid your bills on time. "2" or "3" means you have been 2 to 3 months late in paying your bills. Too
many of theses will hurt your chances in obtaining credit. A "9" means delinquency in paying your bills and a
charge off. This could make it difficult in obtaining a loan.
If you need assistance in interpreting or evaluating your credit report you can ask your accountant or a friendly
banker. If your credit report has a few problems on it, you may find that another bank may evaluate your credit
8. You can check out the Finance section at the SBA website to obtain forms!
SBA Loan Programs
9. Snap Shot
The SBA offers numerous loan programs to assist small businesses. It is important to
note, however, that the SBA is primarily a guarantor of loans made by private and other
PROGRAM: Basic 7(a) Loan Guaranty
FUNCTION: Serves as the SBA’s primary business loan program to help qualified
small businesses obtain financing when they might not be eligible for business loans
through normal lending channels. It is also the agency’s most flexible business loan
program, since financing under this program can be guaranteed for a variety of general
Loan proceeds can be used for most sound business purposes including working
capital, machinery and equipment, furniture and fixtures, land and building (including
purchase, renovation and new construction), leasehold improvements, and debt
refinancing (under special conditions). Loan maturity is up to 10 years for working
capital and generally up to 25 years for fixed assets.
CUSTOMER: Start-up and existing small businesses, commercial lending institutions
DELIVERED THROUGH: Commercial lending institutions
SBA offers multiple variations of the basic 7(a) loan program to accommodate targeted
PROGRAM: Certified Development Company (CDC), a 504 Loan Program
FUNCTION: Provides long-term, fixed-rate financing to small businesses to acquire
real estate or machinery or equipment for expansion or modernization. Typically a 504
project includes a loan secured from a private-sector lender with a senior lien, a loan
secured from a CDC (funded by a 100 percent SBA-guaranteed debenture) with a
junior lien covering up to 40 percent of the total cost, and a contribution of at least 10
percent equity from the borrower. The maximum SBA debenture generally is $1
million (and up to $1.3 million in some cases).
CUSTOMER: Small businesses requiring “brick and mortar” financing
DELIVERED THROUGH: Certified development companies (private, nonprofit
corporations set up to contribute to the economic development of their communities or
PROGRAM: Microloan, a 7(m) Loan Program
FUNCTION: Provides short-term loans of up to $35,000 to small businesses and not-
for-profit child-care centers for working capital or the purchase of inventory, supplies,
furniture, fixtures, machinery and/or equipment. Proceeds cannot be used to pay
existing debts or to purchase real estate. The SBA makes or guarantees a loan to an
intermediary, who in turn, makes the microloan to the applicant. These organizations
also provide management and technical assistance. The loans are not guaranteed by the
SBA. The microloan program is available in selected locations in most states.
10. Contract Surety Bonds
11. What's a Surety Bond?
A surety bond is a three-party instrument between a surety, the contractor and the project owner. The
agreement binds the contractor to comply with the terms and conditions of a contract. If the contractor is
unable to successfully perform the contract, the surety assumes the contractor's responsibilities and
ensures that the project is completed. Below are the four types of contract bonds that may be covered by
an SBA guarantee:
1. Bid - Bond which guarantees that the bidder on a contract will enter into the contract and furnish the
required payment and performance bonds.
2. Payment - Bond which guarantees payment from the contractor of money to persons who furnish labor,
materials equipment and/or supplies for use in the performance of the contract.
3. Performance - Bond which guarantees that the contractor will perform the contract in accordance with
4. Ancillary - Bonds which are incidental and essential to the performance of the contract.
The U.S. Small Business Administration (SBA) can guarantee bonds for contracts up to $2 million,
covering bid, performance and payment bonds for small and emerging contractors who cannot obtain
surety bonds through regular commercial channels. SBA's guarantee gives sureties an incentive to
provide bonding for eligible contractors, and thereby strengthens a contractor's ability to obtain bonding
and greater access to contracting opportunities. A surety guarantee, an agreement between a surety and
the SBA, provides that SBA will assume a predetermined percentage of loss in the event the contractor
should breach the terms of the contract.
A contractor applying for an SBA bond guarantee must qualify as a small business, in addition to meeting
the surety's bonding qualifications. Businesses in the construction and service industries can meet SBA's
size eligibility standards if their average annual receipts, including those of their affiliates, for the last three
fiscal years do not exceed $6 million. Local SBA offices can answer questions dealing with size standard
Types of Eligible Bonds
Bid bonds and final bonds are eligible for an SBA guarantee if they are executed in connection with an
eligible contract and are of a type listed in the "Contract Bonds" section of the current Manual of Rules,
Procedures and Classifications of the Surety Association of America (SAA). Ancillary bonds may also by
eligible for SBA's guarantee. [ For futher information and clarification, please contact our nearest field
Size of Eligible Contracts
The SBA can guarantee bonds for contracts up to $2 million.
The SBA reimburses a participating surety (within specified limits) for the losses incurred as a result of a
contractor's default on a guaranteed bid bond, payment bond, performance bond or any bond that is
ancillary with such a bond. Activity is accomplished through the Prior Approval program or the Preferred
Surety Bond (PSB) program.
Under the Prior Approval program, the agent reviews the application package and recommends it to the
surety company for approval. If the surety company agrees to issue a bond with the SBA guarantee, the
package is forwarded to the appropriate SBA/SBG Area Office and evaluated by SBG personnel. If the
applicant is determined to be qualified and approval is reasonable in light of the risk, SBA may issue a
guarantee to the surety company. The surety then issues the bond to the contractor. SBA's guarantee
agreement is with the surety company not with the small business contractor.
Any surety company certified by the U.S. Treasury to issue bonds may apply for participation in the Prior
Approval program, but its bonds are subject to SBA's prior review and approval. Contractors bonded
under this program are generally smaller and less experienced than contractors bonded under the
Preferred Surety Bond (PSB) program. To compensate surety companies for the risk associated with
bonding Prior Approval contractors, SBA guarantees 90 percent of the losses incurred on bonds up to
$100,000 and on bonds to socially and economically disadvantaged contractors, and 80 percent of the
losses incurred on all other bonds under this program.
12. Equity Capital
13. Understanding Equity Capital
Equity capital or financing is money raised by a business in exchange for a share of ownership in the
company. Ownership is represented by owning shares of stock outright or having the right to convert
other financial instruments into stock of that private company. Two key sources of equity capital for new
and emerging businesses are angel investors and venture capital firms.
Typically, angel capital and venture capital investors provide capital unsecured by assets to young,
private companies with the potential for rapid growth. Such investing covers most industries and is
appropriate for businesses through the range of developmental stages. Investing in new or very early
companies inherently carries a high degree of risk. But venture capital is long term or “patient capital” that
allows companies the time to mature into profitable organizations.
Angel and venture capital is also an active rather than passive form of financing. These investors seek to
add value, in addition to capital, to the companies in which they invest in an effort to help them grow and
achieve a greater return on the investment. This requires active involvement and almost all venture
capitalists will, at a minimum, want a seat on the board of directors.
Although investors are committed to a company for the long haul, that does not mean indefinitely. The
primary objective of equity investors is to achieve a superior rate of return through the eventual and timely
disposal of investments. A good investor will be considering potential exit strategies from the time the
investment is first presented and investigated.
Differences Between Debt and Equity Capital
Debt Capital: Debt capital is represented by funds borrowed by a business that must be repaid over a
period of time, usually with interest. Debt financing can be either short-term, with full repayment due in
less than one year, or long-term, with repayment due over a period greater than one year. The lender
does not gain an ownership interest in the business and debt obligations are typically limited to repaying
the loan with interest. Loans are often secured by some or all of the assets of the company.
Equity Capital: Equity capital is represented by funds that are raised by a business, in exchange for a
share of ownership in the company. Equity financing allows a business to obtain funds without incurring
debt, or without having to repay a specific amount of money at a particular time.
Business “angels” are high net worth individual investors who seek high returns through private
investments in start-up companies. Private investors generally are a diverse and dispersed population
who made their wealth through a variety of sources. But the typical business angels are often former
entrepreneurs or executives who cashed out and retired early from ventures that they started and grew
into successful businesses. These self-made investors share many common characteristics:
• They seek companies with high growth potentials, strong management teams, and solid
business plans to aid the angels in assessing the company’s value. (Many seed or start ups may
not have a fully developed management team, but have identified key positions.)
• They typically invest in ventures involved in industries or technologies with which they are
• They often co-invest with trusted friends and business associates. In these situations, there is
usually one influential lead investor (“archangel”) whose judgment is trusted by the rest of the
group of angels.
• Because of their business experience, many angels invest more than their money. They also
seek active involvement in the business, such as consulting and mentoring the entrepreneur.
• They often take bigger risks or accept lower rewards when they are attracted to the non-financial
characteristics of an entrepreneur’s proposal.
Successful long-term growth for most businesses is dependent upon the availability of equity capital.
Lenders generally require some equity cushion or security (collateral) before they will lend to a small
business. A lack of equity limits the debt financing available to businesses. Additionally, debt financing
requires the ability to service the debt through current interest payments. These funds are then not
available to grow the business.
Venture capital provides businesses a financial cushion. However, equity providers have the last call
against the company’s assets. In view of this lower priority and the usual lack of a current pay
requirement, equity providers require a higher rate of return/return on investment (ROI) than lenders
14. Check out the link above to learn more!
Find an SBA Investment Company on the SBA website by going to
Financing, then Find an SBAIC.
Special Purpose Loan Programs
15. Export Working Capital
The Export Working Capital Program (EWCP) was designed to provide short-term working capital to
The SBA's Export Working Capital Program (EWCP) supports export financing to small businesses when
that financing is not otherwise available on reasonable terms. The program encourages lenders to offer
export working capital loans by guaranteeing repayment of up to $1.5 million or 90 percent of a loan
amount, whichever is less. A loan can support a single transaction or multiple sales on a revolving basis.
Designed to provide short-term working capital to exporters, the EWCP is a combined effort of the SBA
and the Export-Import Bank. The two agencies have joined their working capital programs to offer a
unified approach to the government's support of export financing. The EWCP uses a one-page application
form and streamlined documentation with turnaround usually 10 days or less. A letter of prequalification is
also available from the SBA.
Maximum 7(a) Loan Amounts
Export Working Capital Program Eligibility (EWCP)
In addition to the eligibility standards listed below, an applicant must be in business for a full year (not
necessarily in exporting) at the time of application. SBA may waive this requirement if the applicant has
sufficient export trade experience. Export management companies or export-trading companies my use
this program; however, title must be taken in the goods being exported to be eligible.
Most small businesses are eligible for SBA loans; some types of businesses are ineligible and a case-by-
case determination must be made by the Agency. Eligibility is generally determined Business Type, Use
of Proceeds, Size of Business, and Availability of Funds from other sources. The following links provide
more detailed information about each of these areas.
TYPE OF BUSINESSES ELIGIBLE
USE OF LOAN PROCEEDS:
The proceeds of an EWCP loan must be used to finance the working capital needs associated with a
single or multiple transactions of the exporter.
Proceeds may not be used to finance professional export marketing advice or services, foreign business
travel, participating in trade shows or U.S.support staff in overseas, except to the extent it relates directly
to the transaction being financed. In addition, "proceeds may not be used" to make payments to owners,
to pay delinquent withholding taxes, or to pay existing debt.
The applicant must establish that the loan will significantly expand or develop an export market, is
currently adversely affected by import competition, will upgrade equipment or facilities to improve
competitive position, or must be able to provide a business plan that reasonably projects export sales
sufficient to cover the loan.
Export Working Capital Program (EWCP) Maturities
SBA guarantees the short-term working capital loans made by participating Lenders to exporters. An
export loan can be for a single or multiple transactions. If the loan is for a single transaction, the maturity
should correspond to the length of the transaction cycle with a maximum maturity of 18 months. If the loan
is for a revolving line of credit, the maturity is typically twelve (12) months, with annual reissuances
allowed two times, for a maximum maturity of three years.
Four Unique Requirements of the EWCP Loan
1. An applicant must submit cash flow projections to support the need for the loan and the ability to
2. After the loan is made, the loan recipient must submit continual progress reports. SBA does not
prescribe the Lender’s fees.
3. SBA does not prescribe the interest rate for the EWCP.
4. SBA guarantees up to ninety (90) percent of an EWCP loan amount up to $1.5 million.
For those applicants that meet the SBA's credit and eligibility standards, the Agency can guaranty up to
ninety (90%) percent of loans (generally up to a maximum guaranty amount of $1.5 million).
16. SBA partners
17. Certification Procedures to Become a Certified Development Company
The 504 Certified Development Company (CDC) Program provides growing businesses with long-term,
fixed-rate financing for major fixed assets, such as land and buildings. A Certified Development Company
is a nonprofit corporation set up to contribute to the economic development of its community. CDCs work
with the SBA and private-sector lenders to provide financing to small businesses. There are about 270
CDCs nationwide. Each CDC covers a specific geographic area.
CDC provides to small businesses
A CDC must operate in and adequately service its Area of Operations. It must market the 504 program,
package and process 504 loan applications, and close and service 504 loans. A CDC's loan portfolio must
be diversified by business sector.
A CDC may provide small businesses with financial and technical assistance, or may help small
businesses obtain such assistance from other sources, including preparing, closing, and servicing loans
under contract with Lenders in SBA's 7(a) program.
A CDC also may loan amounts to the Borrower equal to the value of all or part of the Borrower's
contribution to a Project in the form of cash or land, including site improvements, previously acquired by
Applications for Certification as a CDC
A CDC must be a non-profit corporation in good standing. Applicants for certification as a CDC must apply
to the SBA District Office serving the area in which the applicant has or proposes to locate its
headquarters. A CDC must have a designated Area of Operations, specified by the CDC and approved by
SBA. There can be only one statewide CDC in each state, which must foster economic development
throughout the state and provide 504 assistance to areas not adequately served by other CDCs. .An SBA
District Office may accept an application for a county only if:
(1) There is no CDC that includes the county in its Area of Operations; (2) Any CDCs that include the
county in their Areas of Operations have not averaged together at least one 504 loan approval per
100,000 population per year averaged over the 24 months prior to SBA receiving a complete application
from the applicant; and the county has not become part of another CDC's Area of Operations within the
prior 24 months; or (3) The county is part of the Area of Operations of only one CDC; the county has a
population of 100,000 or more; the county has not become part of an Area of Operations within the prior
24 months of another CDC; the applicant is incorporated in the State where the county is located; and the
CDC that includes the county in its Area of Operations submits a statement of no objection to the
An applicant whose application has been accepted must then demonstrate that it satisfies the certification
and operating criteria in Secs. 120.820 through 120.829 and the need for 504 services in the Area Of
Operations Applications must also include an operating budget approved by the applicant's Board of
Directors, and a plan to meet CDC operating requirements (without specializing in a particular industry).
An applicant's proposed Area of Operations may include Local Economic Areas. An applicant may not
apply to cover an area as a Multi-State CDC. The AA/FA shall make the certification decision.
Public notice of CDC certification application
(a) As part of the application process, the applicant must publish a notice in a general circulation
newspaper in the proposed Area of Operations, including the name and location of the proposed CDC, its
purpose and Area of Operations, and the names and addresses of its officers and directors. The applicant
shall send a copy of the notice to SBA. The notice shall provide the public at least 30 days to submit
written comments to the District Office. The SBA shall consider the comments in making its decision on
the application. (b) CDCs serving the proposed Area of Operations shall be directly notified and given at
least 30 days to comment.
Probationary period for newly certified CDCs
(a) Newly certified CDCs will be on probation for a period of two years, at the end of which the CDC must
petition for: (1) Permanent CDC status; (2) A single, one-year extension of probation; or (3) ADC status.
(b) SBA will consider failure to file a petition before the end of the probationary period as a withdrawal
from the 504 program. If the CDC elects ADC status or withdrawal, it must transfer all funded and/or
approved loans to another CDC, SBA, or another servicer approved by SBA.
A CDC must have at least 25 members (or stockholders for for-profit CDCs approved prior to January 1,
1987). The CDC membership must meet annually. No person or entity may own or control more than 10
percent of the CDC's voting membership (or stock). Members must be representative of and provide
evidence of active support in the Area of Operations. Members must be from each of the following groups:
18. Finally, you may want to go to the SBA website to check out some of the
information listed under “Special Interests” in the Financing section. There
you will find many business publications and resources.