SBA Section 7(a) Loan Guaranty Programs for Special Needs

The U.S. Small Business Administration offers programs for special needs under its 7(a) Loan Guaranty Program. In most cases, the guidelines for the basic program governs these programs, including the rules, regulations, interest rate, and fees.

The special programs include the following:

• Export Working Capital Loan
• Export Express
• International Trade Loan
• Defense Loan and Technical Assistance
• Community Adjustment and Investment Program
• Qualified Employee Trusts Loan
• Pollution Control Loan
• CAPLines Loan

Export Working Capital Program

The Export Working Capital Program is a combined effort of the SBA and the Export-Import Bank and was developed to provide short-term working capital for exporters where that capital is not otherwise available on reasonable terms. There is a one-page application form, with a usual turnaround time of 10 days or less.

To qualify for this program, in addition to the eligibility requirements for the Basic Section 7(a) Program, an applicant must be in business for a full year prior to submitting the application, although the requirement may be waived if the applicant has sufficient export trade experience.

The proceeds of an EWCP loan must be used to finance the working capital needs of the exporter, for either single or multiple transactions. Proceeds may not be used for the following: to finance professional export marketing advice or services; foreign business travel; participation in trade shows or U.S. support staff overseas; to pay owners, delinquent taxes, or existing debt.

There are four unique requirements for an EWCP Loan:

• An applicant must submit cash flow projections to support the loan and the ability to repay.
• After receiving the loan, the recipient must submit continual progress reports. The SBA does not prescribe the lender's fees.
• The SBA does not determine the interest rate for the EWCP.

Regarding collateral, a borrower under EWCP must give the SBA a first security interest equal to 100 percent of the EWCP guaranty amount. The collateral must be located in the United States.

Export Express

The SBA Export Express Program combines the SBA's small business lending assistance with its technical assistance program to help small businesses obtain adequate export financing. Specifically, the Export Express Program helps small businesses with exporting potential that need funds to purchase or produce goods, or provide services, for export. Loan proceeds under this program may be used for a variety of purposes.

In addition to the normal eligibility requirements for one of the SBA loan programs, a borrower under the Export Express Program must also do the following:

• Have been in business for at least 12 months (not necessarily 12 months in the exporting business)
• Demonstrate that the loan proceeds will enable the business to enter a new export market or expand an existing export market

International Trade Loan Program

The International Trade Loan Program was developed to assist small businesses preparing to engage in or already engaged in international trade, or a small business adversely affected by competition from imports.

To qualify under this program, a business must establish the following:

• The loan will significantly expand or develop an export market.
• It is currently adversely affected by import competition.
• It will upgrade equipment or facilities to improve its competitive position.
• It will provide a business plan that reasonably projects export sales sufficient to cover the loan.

Loan proceeds from an SBA International Trade Loan cannot be used for debt payment. Only collateral located in the United States, its territories, and possessions is acceptable as collateral under the ITL program.

Defense Loan and Technical Assistance Program

The Defense Loan and Technical Assistance Program was designed to help eligible small business contractors transition from defense to commercial markets. The program provides both financial and technical assistance to defense-related small businesses adversely affected by defense reductions.

This Program can be used in conjunction with both the 7(a) and 504 loan programs. In addition to the eligibility requirements for those programs, to qualify for the DELTA program, a small business must obtain at least 25 percent of its revenue from the Department of Defense or a defense-related contract or subcontract in any one of five prior operating years.

Small businesses wishing to take advantage of the DELTA program must also meet at least one of the program's policy objectives: job retention, job creation, or plant retooling and expansion.

Community Adjustment and Investment Program

This program is designed to assist communities adversely affected by the North American Free Trade Agreement. To be eligible under this program, the business must be located in a county designated as being negatively affected by NAFTA based on job losses and the unemployment rate in the county. Recently the eligibility was expanded to include defined areas within a county, which allows the SBA to act quickly under certain circumstances such as where a plant closes.

CAIP is available for use both with the Section 7(a) and Section 504 loan programs with a job creation component. Under the Section 7(a) loan program, one job must be created for every $70,000 guaranteed by the SBA. Under the Section 504 loan program, one job must be created for every $50,000 guaranteed.

More than 230 counties in 29 states have been designated as eligible for funding under the CAIP Program.

Qualified Employee Trusts Loan Program

This program provides financial assistance to Employee Stock Ownership Plans. To qualify under this program, the employee trust must be part of a plan sponsored by the employer company and qualified under regulations of the Internal Revenue Service Code (Employee Stock Ownership Plan, or ESOP) or by the Department of Labor (the Employee Retirement Income Security Act, or ERISA). If the plan is covered by ERISA, the employee trust must also secure an exemption from the Department of Labor regulations prohibiting certain loan transactions.

Pollution Control Loan Program

Pollution Control Loans are a special purpose program under the Section 7(a) loan program. The special purpose is to provide financing to small businesses for the planning, design, or installation of a pollution control facility that must prevent, reduce, abate, or control any form of pollution.

Proceeds under this program may only be used for fixed assets; otherwise this program follows the Section 7(a) guidelines.

CAPLines Loan Program

CAPLines is an umbrella program consisting of five types of loans to assist small businesses in meeting their short-term and cyclical working-capital needs. Except for the small asset-based line, a CAPLines loan can be for any dollar amount not exceeding the SBA limit.

The five types of loans include the following:

• Seasonal line for advances against anticipated accounts receivable and inventory
• Contract line for financing direct labor and material costs associated with performing assignable contracts
• Builder's line for small builders or general contractors constructing or renovating commercial or residential buildings
• Standard asset-based line for an asset-based revolving line of credit for businesses unable to meet credit standards for long-term credit and
• Small asset-based line for an asset-based revolving line of credit of up to $200,000.

Each of these lines of credit has a maturity of up to five years, but a shorter period may be established depending on the individual business's needs.

Owners of a business holding at least a 20 percent ownership interest will generally be required to guaranty these loans. The nature and value of the collateral of a business will be a factor in granting a loan under this program.