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The SBA loan program, which works through commercial lenders, not directly, is a loan guarantee program making it easier for banks to grant loans to business that would otherwise be "unbankable". This "credit enhancement" capability lowers the bar needed for collateral and other criteria by protecting the lending bank in the case of default. The nee limits on lending are very significant increases, with the cap now being $2 million, with the SBA providing up to $1.5 million of that. The SBA express program, which is now 80% of their loan volume, has significantly reduced the paperwork involved. Personal guarantees are still required but this can often be a great way to get some expansion financing if you have a product or service somewhat proven and need money to grow the business.
On April 5, 2004, H.R. 4062, which provides a temporary extension of authorization for certain SBA programs, was signed into law. Some of the most important changes are summarized in this Notice. These changes are effective starting on April 5, 2004, and expire on September 30, 2004, unless extended by subsequent legislation.
7(a) Program Changes
As a result of this legislation, SBA will be able to provide approximately an additional $3 billion (for a total of approximately $12.5 billion) in 7 (a) loan guarantees through the end of this fiscal year.
The following is a summary of the 7(a) program changes that take effect immediately.
1. Pursuant to this Notice, the temporary $750,000 loan cap imposed by Policy Notice 5000-902 dated December 30, 2003 and which took effect on January 8, 2004, is lifted. The limit on the gross amount of a 7(a) loan once again is $2.0 million, under section 7a)(3)(A) of the Small Business Act ("Act").
2. H.R. 4062 also creates a temporary new term, "Combination Financing," to describe a type of financing commonly known as "piggyback financing". The legislation provides that Combination Financings must meet the following requirements:
The financing must be comprised of both a loan guaranteed under the 7(a) loan program and a commercial loan which is not guaranteed by the federal government.
The commercial loan may be made by the same participating lender that is making the 7(a) loan or by a different lender.
The commercial loan may be (but is not required to be) secured by a lien senior to the lien securing the 7(a) loan.
The commercial loan may be made by a PLP lender.
The commercial loan amount must not exceed the gross amount of the 7 (a) loan.
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Other Articles On Executive Management and Organizational Development (PDF Files):
The 11 Required Elements of a Successful Vision - What is a "Vision" and How to Develop and Use It - (PDF File)
Modes of Management - Shifting Management Gears As Your Company's Stage of Development Evolves
A Simple Framework For Employee Development
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