Guest Blog from Bryce Hansen: Funding for projects (SBA Loans)
The ECC is happy to bring you a guest post from Bryce Hansen, a Technology Commercialization Consultant with the SBDC as well as a finance and accounting consultant with Vensight CFO Services specializing in SBIR grants.
At the Small Business Development Center (SBDC), most people who come in to visit us invariably state they are looking for money. Most cases, this ends up being true; sometimes, though, they simply need better management and accounting practices.
Assuming a client needs money, and depending on the type of business, the industry in which it finds itself, and the trajectory of its model, a company has three general institutional options for funding: debt, equity, and grants. Recently, a fourth option has come on to the scene: revenue-based financing, with a handful of Utah-based firms offering this alternative.
For debt options, the company needs to have an established customer and revenue base, and some period of historic financial statements to draw upon. For traditional bank loans, this is typically three years, but can be lower if SBA loans are targeted. An SBA loan, in the current environment can usually be obtained after one to two years in business. However, in compelling circumstances, a company can get an SBA loan within the first year of operation. Generally a small business is eligible for SBA loans if it has 500 or fewer employees. An SBA loan comes in two forms: (1) 7(a) loans and (2) 504 loans.
7(a) loans go up to $5 million, in either a term loan structure or a line of credit structure, and different banks tend to specialize in different structures. These loans can be used for working capital, equipment, buildings, or acquiring a new business, among other things. The terms range from 7-25 years. Working capital loans are usually 7 years.
504 loans can be used for land, buildings, and equipment that require a long-term note (10-20 years). The note can generally be as high as $5 million. Related to cleantech businesses, a small manufacturer can receive up to a $4 million 504 loan, provided it has a NAICS code within the 31, 32, 33 areas
So what will these loans require of you?
The 7a will require a personal guarantee, and personal or company assets might be required as collateral. The 504 will require a personal guarantee and project’s assets as collateral.
For additional information, please check out www.sba.gov or navigate to the SBDC through http://www.utahsbdc.org/locations and request a visit with one the SBDC business counselors in your area.
Bryce Hansen is a Technology Commercialization Consultant with the SBDC as well as a finance and accounting consultant with Vensight CFO Services specializing in SBIR grants. He can be reached at 801-957-5352 or through email at [email protected].