SBA Loans

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 commercial loan officer of a bank. Even the programs for women, veterans, and the handicapped require that the business owner start with a bank.

The bank 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 bank makes to the borrower. This guarantee lowers the risk to the bank of making a loan, but not the amount of the loan.

Most banks in South Dakota are SBA-approved lenders. Start with your own bank to see if they make small business loans. However, be informed that credit unions, do not fall into this designation.

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