US small business administration loan programs: supporting business startup and growth.

• Author: Barbour, Tracy
• Position: FINANCIAL SERVICES

This summer, Alaska Sprouts is moving into a freshly-remodeled, seven thousand-square-foot facility, thanks to special financing from the US Small Business Administration (SBA). The SBA 7(a) Loan Program allowed the business--which sells sprouts, micro greens, tofu, and mature plants like basil and romaine--to purchase a warehouse with long-term financing and a minimum 10 percent down. The loan will enable Alaska Sprouts to double its square footage, cultivate new customers, and increase the size of its payroll.

The 7(a) loan was the ideal financing to facilitate the expansion of the five-year-old Anchorage business, according to owner S.J. Klein. "Were at a point where to keep growing the business, I needed to make some investments," Klein explains. "It made more sense for us to purchase."

It also made sense to go with the SBA loan program and Wells Fargo, says Klein, who shopped around to find the best option for his business. "The SBA program seemed to be more responsive to the needs of small businesses," he says. "I ended up with Wells Fargo because they were able to work with me in a timely fashion."

Klein's 7(a) loan is among several programs the SBA offers to provide small businesses with access to favorable financing to support their business endeavors. The 7(a) loan, one of the SBA's most utilized programs, caters to a broad segment of borrowers seeking funds to start, acquire, maintain, and expand a small business. SBA also offers Certified Development Company (CDC)/504 loans as a financing alternative, primarily for the purchase of real estate.

SBA 7(a) Loan Program

Under the 7(a) Loan Program, the SBA does not provide loans. Instead, it guarantees loans that are made by participating lending institutions, which means taxpayer funds are only used in cases where borrowers default. This reduces the risk to the lender but not to the borrower, who remains obligated for the full debt, even in the event of default.

The SBA loan guaranty helps to incentivize the loan for the lender, says Sam Dickey, deputy district director of the SBA's Anchorage office. SBA loan guaranties range from 50 to 90 percent of the loan value. Its Express Loan program, for instance, provides a 50 percent guaranty, requiring borrowers to have an equal amount of skin in the game. The typical guaranty with 7(a) loans is around 75 percent, Dickey says.

The SBA's loan guaranty program also ensures that borrowers get a fair deal, Dickey says. "We don't dictate an...