Century Bank: SBA 504 & 7(A) Loans Help Businesses Succeed

    Century Bank: SBA 504 & 7(A) Loans Help Businesses Succeed


    The U. S. Small Business Administration (SBA) assists small businesses in several ways, especially in helping them to obtain funding for many of their needs.

    Century Bank Senior Vice President Fran Lesher and Century Bank Vice President David Valdez are both local commercial bankers. As local bankers they are committed to helping businesses thrive and grow.

    Together, they explain how two Small Business Administration loan programs can help New Mexico small businesses finance growth.

    The following questions and answers about the 504 and 7(a) loan programs show how beneficial these loans can be in helping small businesses succeed:

    What are SBA 504 and 7(a) loans?

    Either of these Small Business Administration programs are good options for business owners to conserve their equity and working capital, or when they don’t qualify for conventional financing. Either can be for purchase or improvement of real estate, including existing buildings or land, constructing new facilities, or purchasing machinery and equipment. The 7(a) loan can also be used for short-term or long-term working capital, the purchase of furniture, fixtures and supplies, the purchase of an existing business or refinancing of current business debt.

    With traditional bank financing, businesses in most cases contribute as much as a 20 percent down payment. With the 504 program, used for fixed assets and real estate, businesses usually only need a 10 percent contribution with the bank financing 50 percent of the total loan amount. A local Certified Development Company (CDC) coordinates the remaining 40 percent with the SBA, as part of its mission to promote economic development within the community. These loans are usually capped at $5 million, with some exceptions.

    In the 7(a) program, the SBA asks a minimum 10 percent down payment from the borrower, and can go as high as 30 percent. The maximum 7(a) loan is $5 million. Qualified applicants can also obtain a line of credit up to $500,000 under the 7(a) express loan program.

    Who qualifies?

    For a business to be eligible for an SBA 504 loan, it must have net worth of less than $15 million, with net income of less than $5 million. For 7(a) loans, annual sales maximum vary by industry, and generally cannot exceed $33.5 million. Other standards for both loans include qualifying within SBA size guidelines, having appropriate management expertise, a feasible business plan, good character, and the ability to repay the loan. Certain kinds of businesses, as well as nonprofits, do not qualify for either loan.

    Why consider these SBA loans instead of a traditional loan?

    In addition to the lower equity requirements, SBA-guaranteed loans have more favorable rates and terms because they are backed by the federal government. Interest rates can be lower than the bank’s market rate, and terms can usually be extended longer than bank financing. Banks also typically use past cash flow in traditional lending, while the SBA allows reasonable and quantifiable income projections to underwrite 504 and 7(a) loans. Using projections can be a big advantage for a startup company or a growing, established business. They could typically qualify for SBA financing, where they might not qualify for a traditional loan based solely on past financial statements.

    Why choose Century Bank for a 504 or 7(a) loan?

    As an SBA partner, Century Bank want its customers to succeed, grow and create jobs in the local community. Century Bank’s track record of working with hundreds of New Mexico companies through the SBA program shows that their success means its success. To discuss whether an SBA loan is right for a business, contact a Century Bank loan specialist today.