SBA 7(a) Loans

SBA 7a LoansSpecial offer for veteransArkansas Capital Corporation (ACC) has been designated as a Preferred Lender by the U. S. Small Business Administration (SBA), which gives us the authority to make credit decisions on behalf of the SBA. This enables Arkansas Capital Corporation to process SBA loans more quickly and efficiently than many other SBA lenders.

SBA guaranteed loans under the 7(a) Loan Guaranty Program are the most popular small business loans available from any federal agency. The name “7(a)” comes from section 7(a) of the Small Business Act, which authorizes the SBA to provide guarantees for small business loans funded by approved lenders.

SBA 7(a) loans are provided by Arkansas Capital Corporation who is authorized to underwrite, close, fund, service, and liquidate these loans by the SBA. This allows us to make loans to small businesses that might not otherwise qualify for financing.

All SBA 7(a) loan applicants must meet the product’s eligibility requirements, which are designed to be as broad as possible. Businesses must meet SBA size standards, must be “for profit”, must be without internal resources to provide the financing, and must be able to demonstrate repayment ability.

Details of SBA 7(a) Guaranteed Loans

Loan Purpose

SBA guaranteed loans can be used to purchase or improve owner-occupied commercial real estate, leasehold improvements, machinery and equipment, fixtures and furniture, inventory, and other business assets; to provide working capital; to refinance certain debt; to purchase a business; and to pay loan closing costs.

Loan Amounts

SBA guaranteed loans funded by Arkansas Capital Corporation range from as small as $100,000 to a maximum of $5,000,000. Loans in excess of $5,000,000 are not eligible for an SBA guarantee.

Time to Closing

  • Proposal Letter — 10 days from receipt of completed ACC Lending Loan Application
  • Underwriting — 10 days from receipt of executed Proposal Letter and Good Faith Deposit
  • SBA approval — 10 days from the date of a submitted loan package
  • Closing — 30 days from the receipt of all required closing items.

From start to finish, providing the timely submission of information, your ACC Lending Loan Processing should not exceed 60 days.

Interest Rates

SBA guaranteed loans funded by Arkansas Capital Corporation carry floating rates, up to 2.75% over the Wall Street Journal Prime rate, adjusting every calendar quarter.

Terms

Up to 25 years; SBA loans are fully amortizing over the life of the loan without balloon or demand features.

The term offered is based on the use of the loan proceeds. Terms for asset categories are as follows:

  • Real Estate — up to 25 years
  • Working Capital — 5 to 10 years, depending on the borrower’s ability to repay
  • Machinery & Equipment — based on the useful life of the asset

Prepayment Penalty

Prepayment penalties will apply for SBA 7(a) Loans with maturities of 15 years or more, as follows:

When in any one of the first three years from the date of initial disbursement the Borrower voluntarily prepays more than 25% of the outstanding principal balance of the loan, the Borrower must pay to Lender on behalf of SBA a prepayment fee for that year as follows:

  1. during the first year after the date of initial disbursement, 5% of the total prepayment amount;
  2. during the second year after the date initial disbursement, 3% of the total prepayment amount; and
  3. during the third year after the date of initial disbursement, 1% of the total prepayment amount.

Loan Fees

An SBA Guaranteed Loan requires a one-time fee (see section below) based on the dollar amount being guaranteed.

SBA application packaging fee of $1,000. Consumer and business credit reports, income tax verification and initial environmental screening – up to $650.00. Loan fees may be financed in the loan. Your Good Faith Deposit will be used to offset loan underwriting, as well as packaging and closing expenses. However, appraisals and further environmental expenses are not included in your Good Faith Deposit and are collected separately prior to the engagement of any such professional services.

SBA Guarantee Fees

Loan maturity of 12 months or less = .25% of guaranteed portion

Loan maturities over 12 months (depending upon gross loan amount, as follows)

Gross Loan $150,000 or less 2.0% of guaranteed portion
$150,001 – $700,000 3.0% of guaranteed portion
$700,001 – $5,000,000 3.5% of guaranteed portion plus 0.25% for the guaranteed portion over $1,000,000

Collateral

Loans must be collateralized to the maximum extent possible up to the loan amount. If business assets do not fully secure the loan and personal assets are available, they must be pledged as additional collateral to secure the debt.

Recourse

All principals who own 20% or more of the business are required to provide a full guarantee. Principals or key managers owning less than 20% may be required to provide a guarantee on a case-by-case basis.

When necessary to secure a collateral position, ACC Lending will require the guaranty of a non-owner spouse to the extent of the spouse’s interest in the collateral.

The guarantee of affiliated companies may also be required based on the percentage of ownership of the affiliate and the borrower’s relationship with the affiliate.

Debt Service Requirements

A minimum historical or projected debt service coverage ratio of 1.2 times is required.

Industries

Loans can generally be made to all for-profit small businesses except those that do not meet SBA 7(a) eligibility requirements. These are primarily small businesses engaged in lending, loan packaging, investments, pawn shops, passive real estate investments, life insurance companies, small businesses located in a foreign country or owned by illegal aliens, pyramid plan sales, gambling, businesses which restrict patronage or promote a religion, cooperatives, non-profits, or individuals of poor character or on probation or parole.

Other Considerations/Requirements

Cash/Equity/Asset Injection: Evidence must be provided by the applicant prior to any loan closing and disbursement.

Subordination/Standby Debt Agreements: Standby creditor must subordinate any lien rights in collateral securing a loan to the lender’s rights in the collateral and agree to take no action against applicant or any collateral securing the Standby Debt without lender’s consent.

Real Estate Appraisals: Required for all Real Estate purchased or used as collateral.

Equipment Appraisals: Required to substantiate the value of any used machinery and/or equipment.

Environmental Reports: Required for all Real Estate purchased or used as collateral.

Late Charge: A late charge (not to exceed $100.00) in the amount of five percent (5%) of the amount of any payment which is not made within ten (10) days of the date the payment is due will be collected from the Borrower.

Loan Proceeds: ACC Lending must document that the borrower used the loan proceeds for the approved purposes.

Insurance: Property insurance (fire and theft, extended coverage and liability) will be required. All personal and real property shall be insured for replacement cost. Insurance coverage for improvements to real property must contain a Mortgagee Clause in favor of lender. Insurance coverage for personal property must contain a Lender’s Loss Payable Clause in favor of lender. Additionally, the policy must provide written notice at least 10 days prior of policy cancellation.

Life Insurance: The key principals of the operating company may be required to provide an assignment of life insurance in the amount of the loan.

Flood Insurance: Will be required if the property is located within a flood area.

Workers’ Compensation Insurance: Will be required in amounts meeting state law requirements.

Verification of Financial Information: Arkansas Capital Corporation must verify the applicant’s last 3 years (unless applicant is a start-up business) of tax returns submitted to IRS via IRS Form 4506-T.

Lease Term: Lease(s), including options, on all business premises where collateral is located should be for at least as long as the term of the loan.

Assignment of Rents: A perfected assignment of all rents paid under a lease between an Eligible Passive Concern (Real Estate Holding Company) and the applicant Operating Company is required.

Landlord’s Waiver: Applicant must provide lender access to any leased premises and facilities where collateral is located with an executed Landlord’s Waiver.

New Construction: Evidence of compliance with the “National Earthquake Hazards Reduction Program Recommended Provisions for the Development of Seismic Regulations for New Buildings” (NEHRP) or a building code that has substantially equivalent provisions is required.

Do-it-yourself Construction or Installation of Machinery & Equipment: Except under special circumstances, will not be permitted.

Cost Overruns: Applicant must show ability to pay cost overruns, if any.

Lien Waivers: Applicant must provide lien waivers or releases from all materialmen, contractors, and subcontractors involved in any construction.

Occupancy: Existing Real Estate Improvements — occupy at least 51% of the property.
New Construction — occupy at least 60% of the property.

Franchised Operations: All franchised operations not listed on the Franchise Registry must pass a legal review of the applicant’s Franchise Agreement and Franchisor’s Disclosure Statement.

Child Support: Certification from applicant that any required child support is no more than 60 days delinquent.

Current Taxes: Applicant must be current on all federal, state, and local taxes, including but not limited to income taxes, payroll taxes, real estate taxes, and sales taxes.

Good Faith Deposits: A Good Faith Deposit (see below schedule) shall be required and applied to the applicant’s SBA packaging fee and other costs associated with credit investigation, underwriting and closing. If approval is not obtained, the Good Faith Deposit shall be refunded (less the cost of credit verification, environmental screening, IRS filing verification and any other out of pocket expenses incurred by ACC).

  • $2,500    SBA 7(a) Loan of $500,000 or less
  • $3,000    SBA 7(a) Loan of $500,001 and over
  • $5,000    SBA 7(a) Loan of $1,000,000 and over

Immigration Laws: Neither the Borrower nor Operating Company has been determined by the Secretary of Homeland Security or the Attorney General to have engaged in a pattern or practice of hiring an alien, recruiting an alien or referring an alien for a fee for employment in the United States, knowing that the person is an unauthorized alien.