SBA and USDA Loans: Frequently Asked Questions from Borrowers

Usually not. With SBA 7(a), USDA B&I, REAP and FSA guaranteed loans, your bank makes the loan and the agency guarantees part of it. With SBA 504, your bank makes a first-lien loan and a Certified Development Company makes a second loan funded by an SBA-guaranteed debenture.

It depends on the program and the project. SBA 7(a) loans to start-ups and most business purchases need at least 10% of project costs. SBA 504 projects need at least 10%, and 15% or 20% for new businesses or special purpose buildings. REAP loans need at least 25%. USDA B&I sets equity in its conditional commitment.

Owners of 20% or more usually do. SBA generally requires a full, unlimited guaranty from each of them, and sometimes from spouses, trusts or holding companies. USDA B&I generally requires guaranties from 20% owners at least equal to their ownership share of the guaranteed amount.

Usually not. The Texas Constitution protects homesteads from most liens, and the narrow exceptions, such as a home equity loan that meets strict constitutional rules, are rarely used for business loans. Your lender will explain which collateral the program and its credit policy call for.

To keep the government guarantee, the lender must prove it followed the program rules, including where your equity came from and how every loan dollar was spent. Organized records keep the closing moving.

It varies. Lenders with delegated SBA authority can often move faster. Appraisals, environmental reports, title, surveys and business valuations often set the pace, and 504 and USDA loans have extra steps after closing.

Sometimes. SBA may require life insurance when a business depends on one owner and the loan is not fully secured. An existing term policy can often be assigned to the lender instead of buying a new one.

Generally yes. For SBA 7(a) loans with maturities of 15 years or more, SBA charges a prepayment fee (5%, 3% or 1% in years one, two and three) if voluntary prepayments in any of the first three years after the first disbursement total more than 25% of the loan's highest outstanding balance. 504 debentures have their own prepayment terms. Your lender can tell you the terms of your loan.

The lender pays the one-time SBA or USDA guarantee fee and may pass it on to the borrower, often by financing it in the loan. Annual SBA and USDA fees are paid by the lender, and SBA's annual fee cannot be charged to the borrower. Fee rates are set each fiscal year.

Yes, we recommend it. The bank's lawyer, including Kennedy Sutherland LLP when it is the bank's counsel, represents only the bank. Your own lawyer can explain the documents, the guaranty and your obligations before you sign.