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Access to Capital for Small Businesses

Assuring the Availability and Efficiency of the SBA's Loan Guarantee Programs

ABA Position

ABA supports legislative and regulatory policies that allow banks to offer their small business customers cost-effective access to government guaranteed intermediate and long-term funding sources. ABA also supports the Small Business Administration's (SBA) role in providing timely, cost effective and targeted loan programs for small business disaster relief. ABA opposes any law or regulation that would handicap the ability of the SBA to provide banks with ongoing, cost effective, and easily accessible government guaranteed loan programs for small businesses.

Many small business owners indicate that one major obstacle to entry or expansion of their small business is the availability of sufficient intermediate and long-term capital to support their working capital and fixed assets requirements. Because of the inherent risk, banks need help in sharing the risk posed by making intermediate or long-term capital loans to small businesses.

SBA is an important partner in providing loan guarantee programs needed by banks to provide the appropriate intermediate and long term capital to their small business customers. The two SBA loan guarantee programs most used by banks today are their 7(a) and their 504 loan programs.

Over the years, the SBA's 7(a) program has successfully served as the premier small business government loan program for many start-up and growing small businesses that lack sufficient access to capital. Loan proceeds can be used for a number of business purposes including working capital, machinery and equipment, furniture and fixtures, land and building, leasehold improvements, and debt refinancing.

The SBA's Certified Development Company (CDC) 504 Loan Program complements the 7(a) program by providing small businesses with the necessary long-term, fixed-rate financing needed to acquire real estate 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.

Banks continue to experience a strong demand for intermediate and long-term loans from their small business customers and prospects. The SBA's 7(a) and 504 loan programs are critical tools in helping banks provide this funding to their small business customers and prospects. Without these loan guarantee programs many small businesses would not be able to obtain the necessary capital to establish or grow their businesses.

ABA will work both independently and jointly with other trade associations and rule making bodies to assure the ongoing availability, efficiency, and viability of the SBA's loan guarantee programs.

Many small business owners indicate that one major obstacle to entry or expansion of their small business is the availability of sufficient intermediate and long-term capital to support their working capital and fixed assets requirements. Because of the inherent risk, banks need help in sharing the risk posed by making intermediate or long-term capital loans to small businesses.

SBA is an important partner in providing loan guarantee programs needed by banks to provide the appropriate intermediate and long term capital to their small business customers. The two SBA loan guarantee programs most used by banks today are their 7(a) and their 504 loan programs.

Over the years, the SBA's 7(a) program has successfully served as the premier small business government loan program for many start-up and growing small businesses that lack sufficient access to capital. Loan proceeds can be used for a number of business purposes including working capital, machinery and equipment, furniture and fixtures, land and building, leasehold improvements, and debt refinancing.

The SBA's Certified Development Company (CDC) 504 Loan Program complements the 7(a) program by providing small businesses with the necessary long-term, fixed-rate financing needed to acquire real estate 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.

Banks continue to experience a strong demand for intermediate and long-term loans from their small business customers and prospects. The SBA's 7(a) and 504 loan programs are critical tools in helping banks provide this funding to their small business customers and prospects. Without these loan guarantee programs many small businesses would not be able to obtain the necessary capital to establish or grow their businesses.

ABA will work both independently and jointly with other trade associations and rule making bodies to assure the ongoing availability, efficiency, and viability of the SBA's loan guarantee programs.

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