Small Business Loans -- FAQ

History of the Program and Current Status

How long has the Program been in existence?  This specific type of SBA loan started in February 27, 1995.

Its History?  SBA Community Express Loans (or government small business loans) began as a pilot program in 1995. It was originally devised as a cost saving measure so that SBA personnel would be freed from the time and expense of complicated paperwork in processing loans internally through their agencies. The idea was to transfer this process to private lenders and technical assistance providers, while still being monitored and guaranteed by the SBA. Because of the popularity of the program, it has been extended in 1998, 2002, 2005, 2006, 2007, and again in 2008.

Are these loans or grants?  These are unsecured small business loans only and not grants.

SBA guaranteed loans?  Some people use the phrase "SBA guaranteed loans". The way it works is simple: A private bank loans the money and if there is a default, the Federal government pays the lender 85% of the defaulted amount. This gives the lenders more incentive to make the loans. Some people are confused and instead think the approval of the loan is guaranteed, which is not the case.

What are these loans called?  The nomenclature of these loans can sometimes be confusing. Simply stated, they are unsecured SBA small business loans. Click Here for examples of some of the names you may run into. Now when you come across these names, you will at least know that they are different variants of the same loan program.

The Lenders

Who are the lenders on these loans?  These loans cannot be made by just any bank or finance company. Before being entitled to make such loans, the SBA goes through a rigorous evaluation process which culminates in the issuance of an SBA license. The available capital, knowledge and experience of the officers, commitment to small businesses, and credit review standards are thoroughly investigated.

Although the loans are actually made by the private institutions, the SBA takes an active role in monitoring and supervising their activities, subjecting them to periodic review and audit, if necessary. This brings to the equation an extra measure of reliability.

Eligibility Requirements

What makes me ineligible?  The following will make you ineligible per SBA guidelines: 1) defaulting on your student loan, 2) delinquent on child support, or 3) unpaid IRS liens.

State or Federal tax liens?  Assuming your credit is otherwise satisfactory, the mere fact that you previously had a state or Federal tax lien would not automatically make you ineligible. However, you would have to show there has been a lien release or a written agreement with the government allowing you to pay it off over time, with proof you are current under that arrangement.

Outstanding civil judgments?  Unfortunately, no bank will give you an unsecured loan if you have an outstanding civil judgment. It must be paid and released through a satisfaction of judgment filed with the court. Paying over time will not do. It must be totally satisfied. Note also there is a major difference between a judgment based on not paying your bills (collection account), and a judgment for some other reason. For example, if you have a judgment based on a personal injury action or a dispute with your insurance company, this has nothing to do with your character of paying your bills and would not be looked at as negatively.

Bankruptcy?  Many banks have a rule that they will not loan to persons who have gone through bankruptcy. The lender we use is different. They do grant loans to bankrupt individuals, but there are three conditions: 1) the bankruptcy has been concluded with an Order of Discharge, 2) you have re-established your credit, and 3) you have paid your bills on time after the discharge.

Criminal arrests and convictions?  Congress enacted this Program with the idea of allowing loans to individuals with "good character". This doesn't mean being a "nice person", but instead is specifically defined as individuals who have satisfactory payment histories and are not involved in certain criminal activity.

If I don’t have any of these factors, am I automatically eligible?  No. These are the minimum requirements. If you fulfill them, you will still be required to have your credit report reviewed.

What is Required?

Are business plans, financials, or tax returns required?  No. As mentioned, this Program has been specifically devised by the SBA to be low on paperwork. On the other hand, if you have prepared a business plan with financials, by all means include it--this can only help your application.

Can I use the loan to purchase a business?  Some lenders will not allow the loan to be used to purchase a new business, but our lender has no such prohibition. Some lenders require proof of at least 10% capital infusion into your new business (your own money put up to start the business, as opposed to loans). There’s no such requirement with our lender.

Do I need collateral?  No. These are unsecured loans, and no collateral is required, such as real estate, inventory, accounts receivable, or machinery.

What kinds of businesses qualify?

Are start-ups allowed?  Yes. In fact, you can get a loan merely with a business idea.

Are certain businesses ineligible?  Yes. Here are some examples: non-profits, gambling ventures, businesses of a religious nature, businesses of a sexual nature, management of your own investments (for example, owning and managing your own apartment building), and speculative real estate (for example, buying property on foreclosure, fixing it up, and selling).

Can franchises apply?  Yes. Strategies For Small Business has funded a number of franchises, including Quiznos, Mac Tools, 123 Fit, Curves, Cold Stone Creamery, Liberty Tax Services, UPS Stores, Subway, and many others. If your franchise is listed on the Federal franchise registry ( www.franchiseregistry.com ), there is no further review required. But even if not registered, it could still be approved by the credit manager by simply reviewing the franchise agreement to determine whether there is too much control being exercised by the franchisor.

What can the loan be used for?  For any business purpose, including the purchase of a business, cash flow, working capital, rent, payroll, new employees, advertising (ads, fliers, business cards, etc.), buying inventory, computers, signs, office equipment and furnishings, and other business expenses.

Credit requirements

We all know the significance of credit in today's world. It seems that every step we take involves the analysis of our credit report. Not only buying a car, getting a credit card, or securing a loan, but also situations we never suspected: applying for a job or signing up for a utility account. This becomes even more crucial when you consider these are unsecured loans. For example, when you buy a house or a car, the lender relies heavily on that security. With unsecured loans, the only thing the lender has to go on is your credit history. Notwithstanding, we have helped thousands of businesses who might not otherwise have qualified for traditional bank loans. Although certainly no guarantee, we will not deal with any lender that does not understand and appreciate the needs of a small business.

What kind of credit do I need?  Satisfactory credit.

What credit score?  We do not use credit scores. They are considered too arbitrary. This might work for the simpler approval of a credit card, but not unsecured loans. Instead, the credit manager looks at every credit report, line by line, and makes a decision based on each individual’s whole picture.

OK, I understand that, but can you give me some idea of my chances before I apply?  Absolutely. One of things we do is discuss a person's credit history over the phone (confidentially without disclosure of sensitive information and with no copy of credit report forwarded to anyone) to give them an idea of their chances before they make the application. In order to do this, simply get your recent credit report in front of you, call our office, and we would be happy to not only give you a general idea, but also make suggestions of improving your credit or disputing certain items. This is especially the case when you bear in mind studies show the majority of credit reports have some errors on them. Or, you can view our Free Online Credit Repair Kit.

What credit bureau do you use? Experian personal report.

Do you look at business credit?  No. For example, Dunn and Bradstreet is not reviewed.

If I get turned down, can I resubmit?  Absolutely. We are not licensed credit counselors, but we frequently go over your credit report after you have been turned down. You then have the option of writing a letter of reconsideration to the lender, describing in detail the negative items and requesting that they review the file again. Most lenders do not have a formal system of reconsideration; we created it for the benefit of our applicants.

What if I don’t have much credit?  In the industry, no credit is bad credit. The lender has to look at some kind of credit history before they make their decision. Unfortunately, there are people that pay cash for everything and do not have such a history. We envy these individuals because they are not in debt, but it is an impediment to securing a loan. However, we have some suggestions of how to immerse yourself into the credit world without incurring a lot of debt. If you call us, we can share our thoughts without charge to get you started.

Can you give me a decision over the phone without having to run my credit report?  You can guess the answer on this one . As much as we would like to, this would violate lender rules and regulations of the SBA. Unfortunately, your credit must be run before a decision is made.

Are these loans reported each month on my personal credit report?  These loans are not like credit cards and your monthly payments are not reported on personal credit reporting services. However, if you are delinquent, it will be reported.

Will this build up my business credit?  Yes, and this is one of the benefits of the Program. If you have a Dunn and Bradstreet number, the lender will be happy to report your payments so you can build up your credit with that bureau. We also love to give recommendations. If you have been paying on one of our loans for a while and are now requesting a larger loan or line of credit with your local bank, we would be delighted to speak on your behalf--not only indicate your good payment history, but more about your business which would certainly help in that review process. Remember that these are not sub-prime loans. These are good solid SBA loans that reflect well on you and your business.

Can I use a co-signer?  Sorry, co-signers are not allowed. However, anyone with a 20% or more interest in the business, at the time of signing the application, will have his or her credit checked. You may wish to talk with Strategies for more details in this regard.

How Does the Process Work?

The process is quite simple and there is no need to complicate matters. View the page titled "How It Works" and you will see how the process works, step by step.

How often can I apply?  You can apply for a new loan every six months. And, there is no need to pay off your existing loan. You can simply ask for more money. Although not a guarantee, many of our borrowers are successful with these repeat loans.

Can I apply simultaneously with another SBA lender?  No as to the Community Express Loan Program, but yes as to other programs. The SBA has a prohibition of simultaneously applying for and receiving multiple loans with other banks under the same program. So, if you are applying under our program, you could not make a similar application the same time with another lender. You must wait at least 90 days to do this. However, you can simultaneously apply with another loan program (for example 7(a) secured loans).

Do I get free help for my business?  Yes, both before and after receiving your loan. The SBA has set up a system that in conjunction with the loan, you also receive free business assistance. They want you to succeed. Your needs are evaluated and recommendations are made. This is called free technical assistance and it is administered by certified technical assistance providers ("TAP"). With this particular Program, a variety of resources are available free to you, including books, pamphlets, workshops, videos, templates, and "one on one" counseling. The SBDC's (Small Business Development Centers) maintained by the SBA and SCORE (Service Corps of Retired Executives) are excellent sources and have regular programs and consultations. Just let us know and we can give you more information. Our lender who is a certified TAP, will offer free online classes and sources of information to help promote and expand your business. Remember, it is against Federal regulations for anyone to charge for providing information about the Program or assistance in filling out the forms. You should be wary of any individual or group that attempts to charge for these services.

Thank you for showing an interest in our program. Good Luck. Sue Malone.