Small Business Administration (SBA) Loans

Interview – Our SBA Relationship Managers are experienced in SBA lending. We understand that every business is unique and that is why we want to fully understand your needs so we can come up with solutions and structure that gives you the best deal. We also enjoy educating you through the process if you have questions. You are an expert at business, lets us help you understand your SBA lending options.

Application- This is the process where you need to fill out some forms as well as provide us with business and personal financial statements. See below for the items that are required during this part of the process.

Underwriting – Our experienced SBA underwriters and lenders work during this process to understand the business and personal financial information that you presented to us during that application phase. It is completely normal for us to ask questions to clarify our understanding of what we are reading. We try very hard to give quick decisions, but also want to make sure that we are giving you our best deal. Since Gesa is a Preferred Lending Provider by the SBA we can turn months into days with our approval process.

Decisioning Process– This is the time when your loan is presented to the approver or loan committee. This is the part in which your loan is officially approved, declined or a counteroffer is made.

Loan Closing – Once you get the final terms of our approval, we move to the loan closing phase where our team works to coordinate all the details and conditions. We are committed to an on time closing because we know you are excited to move forward.

After loan closing – We are committed to being your banking partner as our service doesn’t end at closing. Your relationship managers are always there for ongoing support and being there if you have questions. This on-going communication is unique to the SBA industry, and we are proud to offer our members this invaluable resource.

• Purchase, construct or renovate owner-occupied commercial real estate- Buy a building for your business and replace your rent.

• Acquire a business– Do you want to buy an existing business? SBA loans can help.

• Purchase equipment and vehicles for your business

• Growing your business with newer equipment or vehicles to be more productive.

• Working capital for your business– Maybe you have customers that are taking longer to pay and needs some capital, or you are entering a slow season and need capital to make payroll.

• Refinance debt– Perhaps you have some higher interest credit card or term loan debt. Refinancing that debt for a longer term which will give you a lower monthly payment may be a good financial strategy.

• Lower down payments which means more money in your business account
• Longer loan terms which means your payments will be smaller
• No balloon payments which means no need to refinance or worry about the loan coming due in the middle of the loan term.
• Finance Goodwill/Intangible assets in Business Acquisition Purchases

Interest rates are negotiated between the borrower and the lender but are subject to SBA maximums. Interest rates are typically variable based on Wall Street Journal Prime Rate. Your payments and interest rate can adjust quarterly up or down based on prime rate. See your SBA Relationship Manager to learn more about Gesa Credit Union SBA interest rates.

Note 1: The SBA specifies the amount of certain fees each fiscal year for all loans approved during that year. The current fees expire September 30, 2023.

Note 2: For example, the guaranty fee on a $100,000 loan with an 85% guaranty would be 2% of $85,000 or $1,700
Note 3: For example, the guaranty fee on a $5,000,000 loan with a 75% guaranty (3.75 million guaranteed portion) would be 3.5% of $1,000,000 ($35,000) plus 3.75% of $2,750,000 ($103,125) with totals $138,125.

The SBA specifies the amount of certain fees each fiscal year for all loans approved during that year. The current fees expire September 30, 2023.

Make sure to ask your SBA Relationship Manager for other fees that could be charged for SBA loans.
*Source: sba.gov

For loans with a maturity of 179 months or less, there are no prepayment penalties

For loans with a maturity of 180 months or longer, prepayment penalties apply when:
The borrower voluntarily prepays 25 percent or more of the outstanding balance of the loan.
The prepayment is made within the first three years after the date of the first disbursement of the loan proceeds.

The prepayment fee is as follows:
During the first year after disbursement, 5 percent of the amount of the prepayment.
During the second year after disbursement, 3 percent of the amount of the prepayment.
During the third year after disbursement, 1 percent of the amount of the prepayment.

*Source: sba.gov

While the vast majority of businesses are eligible for financial assistance from the SBA, some are not.

Eligible businesses must:

• Operate for profit
• Be engaged in, or propose to do business in, the U.S. or its territories
• Have reasonable owner equity to invest
• Use alternative financial resources, including personal assets, before seeking financial assistance

Ineligible businesses
Ineligible businesses include those engaged in illegal activities, loan packaging, speculation, multi-sales distribution, gambling, investment or lending, or where the owner is on parole.

Specific types of businesses not eligible include:

• Real estate investment firms, when the real property will be held for investment purposes as opposed to loans to otherwise eligible small business concerns for the purpose of occupying the real estate being acquired.
• Firms involved in speculative activities that develop profits from fluctuations in price rather than through the normal course of trade, such as wildcatting for oil and dealing in commodities futures, when not part of the regular activities of the business.
• Dealers of rare coins and stamps are not eligible.
• Firms involved in lending activities, such as banks, finance companies, factors, leasing companies, insurance companies (not agents), and any other firm whose stock in trade is money.
• Pyramid sales plans, where a participant’s primary incentive is based on the sales made by an ever-increasing number of participants. Such products as cosmetics, household goods, and other soft goods lend themselves to this type of business.
• Firms involved in illegal activities that are against the law in the jurisdiction where the business is located. Included in these activities are the production, servicing, or distribution of otherwise legal products that are to be used in connection with an illegal activity, such as selling drug paraphernalia or operating a motel that permits illegal prostitution.
• Gambling activities, including any business whose principal activity is gambling. While this precludes loans to racetracks, casinos, and similar enterprises, the rule does not restrict loans to otherwise eligible businesses, which obtain less than one-third of their annual gross income from either the sale of official state lottery tickets under a state license, or legal gambling activities licensed and supervised by a state authority.
• Charitable, religious, or other non-profit or eleemosynary institutions, government-owned corporations, consumer and marketing cooperatives, and churches and organizations promoting religious objectives are not eligible.

Make sure to talk with your SBA Relationship Manager for details on these rules.

*Source: sba.gov

Lenders are not required to take collateral for loans up to $50,000. (Effective 8/1/23)
For loans greater than $50,000 up to $500,000 the lender may also look for additional collateral from the guarantor such as equity in residential or investment real estate to collateralize the loan.
For loans more than $500,000, the SBA requires that the lender collateralize the loan to the fullest extent possible up to the loan amount. If business fixed assets do not “fully secure” the loan the lender may include trading assets (accounts receivable & inventory) and must take available equity in the personal real estate (residential and investment) of the principals as collateral.
SBA considers a loan as “fully secured” if the Lender has taken security interests in all assets being acquired, refinanced, or improved with the 7(a) loan and available fixed assets of the Applicant with a combined Net Book Value as adjusted below, up to the loan amount. The term “fixed assets” means real estate, including land and structures, machinery and equipment owned by the business or guarantor.

• Any Improved Real Estate- 85%
• Residential or Commercial Land- 50%
• New machinery and equipment- 75%
• Used or existing machinery and equipment- 50% of net book value OR 80% with a liquidation appraisal

Make sure to talk with your Gesa SBA Relationship Manager to structure the best deal for you.

*Source: sba.gov

Step 1: Required forms/reports to review an SBA loan application:

• Gesa Business Credit Application
  • Click here for help on how to fill out this form:
    https://youtu.be/tjdH__rYzDk
• Personal Financial Statement (SBA 413) for each guarantor/owner with over 20% or more ownership in the business that is applying for the loan.
  • Click here for help on how to fill out this form:
    https://www.youtube.com/watch?v=LkeqQ8TGyrs
• 3 years personal tax returns with K-1’s for all guarantors/owners with over 20% or more ownership.
• 3 years business tax returns (All pages and schedules)
  • If you own any other business over 20%, 3 years tax returns will be needed for each entity.
• Current year to date profit and loss and balance sheet for each operating business
• Business debt schedule

Step 2: If you want to get a head start on the application process you can start filling out this section or wait until you are conditional pre-qualified by your SBA lender.

• SBA form 1919
  • For assistance in filling out this form you can review the following video at:
    https://www.youtube.com/watch?v=ZTCLdQW5nqo
• 4506C request for tax transcripts
• Business plan (if lender requests)
• Insurance agents name and phone number
• Corporate entity documents
• Copy of driver’s license for each guarantor
• If you loan is for a business acquisition:
  • SBA Business Acquisition Questionnaire (provided by the lender)
  • Last 3 years tax returns of the business that is being purchased
  • 2 years financial projections with assumptions (if lender requests)
  • Current year to date profit and loss statement and balance sheet for the business that is being purchased
  • Resume for each guarantor
  • Asset list with value of each asset
  • Purchase and Sale Agreement
  • Landlord’s name and phone number if leasing business property
  • Last 2 months bank statements showing equity is ready for purchase.
• If your loan is to purchase commercial real estate:
  • Copy of Purchase and Sale Agreement
  • Environmental Questionnaire (provided by the lender)
• If your loan is to construct commercial real estate
  • Copy of Purchase and sale agreement (For land)
  • Construction budget
  • Contractor agreement
  • Copy of architectural drawing & plans
  • Environmental Questionnaire (provided by the lender)