SBA Lending

SMALL BUSINESS ADMINISTRATION 504 LOANS

This long established program has had a great impact on South Dakota business development over the years. Funds are available for fixed assets such as land, buildings, and equipment. No working capital, inventory, venture capital or refinancing loans are eligible. Borrowers must be for-profit businesses with a net worth less than $6 million, and whose after-tax profits the past two years have averaged less than $2 million. An operation not meeting those standards might still be considered a small business based on its number of employees, a number that varies depending on the type of business.

Administered by the Black Hills Community Economic Development, Inc., the program works with banks and businesses on what's known as a 50-40-10 structure. That means a regulated lender typically provides fifty percent of the financing and receives a first mortgage position on all project collateral. Forty percent is provided by the Black Hills Community Economic Development, Inc which sells debentures guaranteed by SBA and receives a subordinated collateral position. The remaining ten percent is provided by the borrower in a cash equity injection. Black Hills Community Economic Development's portion may range from a minimum of $50,000 to a maximum of $1.3 million. Finance rates are fixed for the repayment period, usually 10-20 years.

Small Business Administration 504 Loan Application
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If you have any further questions or would like to know more about any of the loan programs contact us.

SBA Loan Guarantees

The second item that needs to be covered is that the Small Business Administration does not make direct loans to businesses.

To obtain an "SBA loan" a business owner must first contact a lender.

The lender evaluates the needs of the business; determines the potential borrower's eligibility for a loan; helps the borrower fill out application forms; and determines which of the many loan programs is most appropriate for the situation. If the loan needs a guarantee in order to be more attractive to the lender, the package is forwarded to the SBA.

The role of the SBA is limited to guaranteeing some portion of the loan that the lender makes to the borrower. This guarantee lowers the risk to the lender of making a loan, but not the amount of the loan.

Most lenders in South Dakota are SBA-approved lenders. Start with your own lender to see if they make small business loans.

There are a number of different types of loans that the SBA will guarantee. The following is a brief description of the loans available. However, a more 'detailed description along with application forms and web links can be found at http://www.sba.gov.

7(a) loans are for small businesses that cannot obtain financing on reasonable terms through other channels. The loan amount can go up to $1,000,000 and the interest rate is negotiated between the applicant and the lender. Loan term is 7 years for working capital and up to 25 years for fixed assets.

504 loans are for long term, fixed asset (machinery, land and buildings only) financing through certified development centers (CDCs) in conjunction with the banks. Contact Fran White , CDC in Rapid City at (605) 394-1706 for amounts and conditions.

Other, very targeted loan programs are available under the SBA guarantee program. They Include the Export Working Capital Program and Energy & Conservation Loans. Contact the SBA District Office in Sioux Falls (605) 330-4243 for more information.