US Small Business Administration Loan

US Small Business Administration Loan

Small play businesses a very important role in US politics and the economy. Protecting and promoting the development of small businesses is also an important policy of the US government to address employment and achieve economic equality. The US Small Business Administration (“Small Business Administration” ) The Enterprise Agency”) is the main agency for implementing this government policy. The Small Business Bureau was established in 1953. The director is nominated by the president and appointed and removed after deliberation by the Senate.

Public data shows that the Small Business Bureau’s 2015 fiscal year (the US fiscal year is from October 1 of the previous year to September 30 of the current year – editor’s note) The number of guarantees for major loan products reached $22.5 billion, an increase of 20% over the previous year. This is basically in line with the 66 consecutive months (as of September 2015 – editor’s note) that the United States has maintained an upward trend in employment.

From the perspective of support measures, the Small Business Bureau mainly provides comprehensive services for small businesses from two aspects: finance and consulting. Financial instruments include loan guarantees (Business Loads) and investment financing plans. This article only briefly introduces the former, that is, the loan guarantee corresponding to the main business of my country’s policy-oriented SME guarantee institutions.

The main features of the SBA loan guarantee system are as follows:

1. Simplified Small Business Standards

At first, the classification criteria for small businesses was only the only standard of “less than 500 people”, but it gradually evolved into two interchangeable criteria that are still simple and clear. Any business that meets one of the following two criteria can apply for a loan guarantee Qualifications:

(1) Standard 1

The number of manufacturing workers is between 500-1500

Wholesale business with less than 100 employees

Service industry annual sales of 2 million to 33.5 million US dollars

Retail annual sales of $7 million to $33.5 million

Construction industry annual sales of $7 million to $33.5 million

The annual sales of agriculture, animal husbandry, and fishery are 750,000-17.5 million US dollars

(2) Standard 2

The applicant’s net assets do not exceed 15 million US dollars, and the net profit in the last two years does not exceed 5 million US dollars.

2. Rich financial resources

According to the current functional requirements of the Small Business Bureau, except for the “Microloan Program” product, which accounts for a very small proportion, the Small Business Bureau directly provides loan funds to borrowers through intermediaries, and all other loans are funded by third parties. Provided by financial institutions, SBA does not lend directly. At present, the Small Business Bureau has accepted registration applications from a total of 2,500 financial institutions in the United States and has formed a loan limit of about 100 billion US dollars, which is about five times the existing insured limit. The small business bureau’s cooperative financial institutions include banks and other financial institutions that provide similar services, but all cooperative financial institutions must be certified by the bureau.

2. Various loan products

The Small Business Bureau’s loan guarantee products mainly include three types of 7(a) loans, development loans, and micro-loans.

The 7a loan [7(a) loan program] is the most popular and largest loan guarantee product for most small businesses (owners). According to data in recent years, the number of guarantees and the number of enterprises of this product account for about 80% and 40% of the entire loan guarantee business, respectively. 7a loans include basic loans and special loans. The latter is further divided into more specific and detailed products such as international trade loans, export loans, temporary loans, SBA express loans, and export express loans to meet the needs of small enterprises in the industry type. , development stage, operating model, loan purpose, loan size, and loan efficiency.

(2) Development loan

Development Loan [Certified Development Company Loan Program or 504 Loans], the main purpose of which is designed to help specific communities develop regional economy, the policy orientation is relatively clear, and the investment field is more specific, including helping suburban economic development, improving energy use, undertaking public Engineering and supporting veteran business owners and more. Development loans generally have relatively specific requirements for jobs and other economic indicators. Compared with the 7(a) loan ratio, this product has the characteristics of the longer loan term, fixed interest rate, and loose mortgage.

(3) Micro-loans

The Microloan Program is the only service provided by the Small Business Bureau that provides loans. It has a strong policy nature and is a special product that mainly serves vulnerable groups. Microloans are low-value, short-term, up to $50,000 and for up to six years, and are aimed at women, low-income earners, minorities, veterans, and other small business owners. Typically, the bureau provides loans directly to more than 100 accredited intermediaries located across the United States, who then lend to eligible borrowers. The SBA also trains borrowers in a variety of ways to support disadvantaged groups and small business owners in capacity building.

3. Longer loan term

In terms of the loan term, the approach of the Small Business Bureau is quite different from that of our country. Most SME loans in my country are based on short-term working capital loans with a one-year term, while the Small Business Bureau encourages cooperative financial institutions to make long-term loans. The terms of various loan products are relatively long, whether it is business financing or new business startups. Financing, loans are generally between 7-10 years. If the business loan is used to purchase real estate or other long-term fixed assets, the maximum term can even be as long as 25 years. Corresponding to the long term of the loan, most of the repayment methods of the loans guaranteed by the Small Business Bureau are installments, and the repayment pressure of small enterprises (owners) is relatively light.

4. Reasonable risk sharing

The Small Business Bureau is the same as other developed countries and regions in terms of risk-taking, that is, the principle of proportional sharing, and the specific sharing ratio depends on the loan amount and application procedures.

In terms of the loan amount, the Small Business Administration assumes 85% of the risk for projects with a loan amount of $150,000 or less and 75% of the risk for projects over $150,000. In addition, the SBA’s maximum award for a single item is no more than $3.75 million.

In terms of application procedures, for the projects applied for according to the general procedures, the Small Business Bureau generally shares the risk according to the proportion of 75%-85%; for the projects applied for according to the special procedures, such as the projects applied for according to the international trade loan, the Small Business Bureau can bear the risk ratio. can be as high as 90%.

5. Floating rate policy

The Small Business Bureau has formulated a more flexible rate policy according to the different loan amounts and terms. Usually, the cooperative financial institution pays the guarantee fee to the Small Business Bureau first and then transfers the guarantee fee to the small enterprise when the project is completed. The guaranteed rate is generally linked to the guarantee ratio of the Small Business Bureau, such as:

– If the loan term is 1 year or less, a 2.5% guarantee fee will be charged;

-The loan term exceeds 1 year, the guarantee amount does not exceed 150,000 US dollars, and a 2% guarantee fee is charged;

– The loan term exceeds 1 year, the guaranteed amount is 150,000-700,000 US dollars, and a 3% guarantee fee is charged;

-The loan term exceeds 1 year and the guarantee amount exceeds US$700,000, and a 3.5% guarantee fee will be charged;

In addition, any guarantee over $1 million is subject to an additional 0.25% guarantee fee for the excess.

To sum up, the US government’s policy guarantee system pays more attention to the important role of small businesses in employment. As the executive agency of this policy, the Small Business Bureau has established a relatively complete and effective loan guarantee service system after more than 60 years of development. Its practices in product design, loan term, risk-sharing, and rate pricing mechanism have certain enlightening significance for the next development of my country’s policy financing guarantee industry in the period of “reform and transformation”. Especially for those local governments with greater pressure of employment and social stability, it has a strong reference value.

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By Michael Caine

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