SBDC Counselor Certification Manual

MODULE 9 – Sources & Requirements for Financing

Table of Contents
1. Performance Objective

2. Introduction

3. Change of Ownership of Existing Business

4. Where to Find Money for Your Business

5. Loans

Performance Objective

The Business Counselor will:

• Explain the advantages, disadvantages, and requirements for debt and
equity financing, and the requirements and process of obtaining a SBA
loan.
• The Business Counselor will also assess the client’s potential for
financing prior to advising the client to seek financing.

Evaluation

The Business Counselor will demonstrate proficiency in sources and

requirements for financing by completing all of the following tasks.

1. Demonstrating to the mentor during co-counseling, the ability to

assess a client’s ability to achieve financing; effectively advising the
client of the advantages, disadvantages and requirements of debt and
equity financing; and the requirements and process of obtaining SBA
loans. The mentor will verify proficiency to the training coordinator.
2. Reporting the results of the interview, including the loan checklist, with
the loan officer to your mentor.
3. Correctly answering case study questions concerning financing issues.
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How You Will Be Trained
1. Read Module 9 in its entirety.
2. Attend training on financial sources.
3. Co-counsel clients with your mentor.

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Introduction

Understanding basic credit issues is the first step in determining

whether or not a client needs, is eligible to apply, or qualifies for financial
assistance.

Equity Investment

Determining whether the company’s level of debt is appropriate

requires an analysis of the company’s expected earnings and the variability
of these earnings, as well as the ratio between total debt and equity. Strong
equity and low debt levels provide resiliency which will help a firm weather
periods of operational adversity. There must be careful examination of the
debt-to-worth ratio of a company. Sufficient equity is particularly important
to new businesses. Business loan applicants must have a reasonable amount
to invest to ensure that, along with any borrowed funds, the business can
operate on a sound basis. A strong equity position ensures that owners will
remain committed to their business.

Earnings Requirements

Financial obligations are paid with cash, not profits. When cash outflow
exceeds cash inflow for an extended period of time, a business cannot
continue to operate. As a result, cash management is extremely important.
In order to adequately support a company’s operation, cash must be at the
right place, at the right time, and in the right amount. A company must be
able to meet debt payments as they come due.

Working Capital

Working capital is essential for a company to meet the continuous

operational needs of business. The adequacy of working capital directly
influences the firm’s ability to meet its trade and short-term debt obligations,
and ultimately its ability to remain financially viable. Working capital is the
excess of current assets over current liabilities. Because working capital is
the excess of the more liquid, working assets over the obligations of a firm
which are due within one year, it measures the funds available to finance a
company’s current requirements and represents the cushion or margin of
protection for a company’s short term creditors.

Collateral

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 To the extent that worthwhile assets are available, adequate collateral
is required as security on an SBA guaranteed loan. However, a loan may not
be declined where inadequacy of collateral is the only unfavorable factor. In
the event real estate is to be used as collateral, borrowers should be aware
that banks and other regulated lenders are now required by law to obtain
third-party appraisals on real estate related transactions of $250,000 or
more. Certified appraisals are required for business loans of $1 million or
more. However, when commercial real estate represents the major piece of
collateral for a loan, the SBA will require a third party appraisal. Regardless
of loan size the lender is expected to use prudent valuation practices. Just
be aware that an evaluation of some sort is likely to be required on real
estate secured transactions.

Each piece of commercial real estate collateral taken must undergo

environmental inspection, per the commercial lender’s prudent lending
practices as well as SBA’s environmental investigation policies in the SBA
SOP 50 10 – New Loan processing.

Owner-occupied residences are generally used for collateral when:

• the participating lender requires the residence as collateral
• the equity in the residence is substantial and other credit factors are
weak
• such collateral is necessary to assure that the principal(s) remain
committed to the success of the venture for which the loan is being
made,
• the applicant operates the business out of the residence or other
buildings located on the same parcel of land.

Change of Ownership of Existing Business

Buyers and sellers of a business as well as commercial lenders all need

to make a determination of “going concern value” for that existing business.
The SBA will require the lender and purchaser to follow empirical financial
studies of historical
cash flow and profits to determine the “going concern value” of the business
and assets being financed compared to the amount of the loan. The SBDC
offers a business valuation service that meets these criteria.

Resource Management

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 The ability of a potential borrower to manage resources is a prime
consideration when determining whether or not a loan will be made, and in
what amount.
Managerial capacity is an important factor involving such areas as
education, experience and motivation. Proven ability in resource
management is also a large consideration. Mathematical calculations based
on information provided in financial statements provide an illustration of how
resources have been managed in the past. It is important to understand that
no single ratio will provide a whole illustration but that several used in
conjunction with one another will provide an overall picture of management
performance.

Funding Sources
A common misconception about finding money for your business is
that you will get a loan in one big, fat check that will handle all startup costs.
This is rarely the case. Usually a business is financed by a combination of
sources and a whole lot of creative thought on the part of the entrepreneur.
It’s like putting together a puzzle with lots of pieces. As a counselor, your job
is to help the entrepreneur fit together that puzzle. Below is a list of potential
funding sources you can pass along to your clients.

Where to Find Money for Your Business

• You- The most logical place to look for financing is in your own
assets. These sources include money in bank accounts, certificates
of deposit, stocks and bonds, cash value in insurance policies, real
estate, home equity, and value of hobby collections, automobiles,
and pension fund, Keogh or IRAs.
• Friends and Family- Quite frequently, friends and family represent
a source of money needed for a small business start-up or ongoing
business. If you use this source, you’ll want to be sure to have a
written agreement and handle the transaction in a businesslike way.
Spell out clearly the terms to which you and your friends or relatives
have agreed.
• Your Own Company- An established company or business has
several options available to serve your financing needs. These
include taking a first or second mortgage on any real estate or
property that it owns; borrowing money against machinery or hard
assets such as equipment or motor vehicles; or borrowing against
inventory that is considered liquid.
• Pledging Accounts Receivable- If you have accounts receivable,
you can pledge them by turning them over to a bank or loan
company in exchange for cash. Then, as the receivables are paid,
the bank deducts a certain amount of each payment until the loan is
paid. Factoring is another method. The cost the factoring company
charges depends on how old your accounts receivable are, who
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 owes you the money, what you sell, and how long you have been in
business. You can find a listing of factors in the Yellow Pages. You
can also get a list of such companies from your banker.
• Commercial Banks- Banks represent the largest single source for
loans and financing. The amount of interest they charge is based on
two factors: the size and history of the customer and the risk the
bank will take in providing the loan. SBA guaranteed loans are
available through banks, making more money available for business
loans.
• Finance Companies- Finance companies are generally considered
collateral lenders, that is, they rely upon the borrower’s ability to
back up every dollar of the loan with assets. Their interest rates are
usually higher than banks.
• Credit Unions- Credit Unions have traditionally financed cars and
appliances; however, recently they have expanded their lending
operations to include nonmembers and investments outside of
traditional financial investments.
• Private Investors- These individuals or groups make investments
and loans, usually in exchange for an equity interest in a company.
The funds available from private investors vary widely. Some
confine their activities to high technology firms, while others may
invest or lend money to retailers. Investors can be found through
local bankers, accountants, lawyers or your local newspaper’s
Sunday classified advertising pages.
• Venture Capitalists- The venture capitalist almost always seeks
an equity or ownership interest in the firm in exchange for capital.
The venture capitalist is usually interested in high- technology or
technology-related start-up businesses.
• Customers- Customers or potential customers can be an excellent
source of funding. Customers may provide you with actual cash
loans to put into your company or they may provide cash through
prepayment for services or products.
• Suppliers- Suppliers can be a great source of funding by giving 30
to 90 day terms. Sometimes, suppliers will provide supplemental
equipment that is necessary for use with the products they provide.
For example, food wholesalers will often provide display cases,
shelving and other equipment.
• Leasing Companies- Lease your equipment instead of buying it
and you may find companies eager to help you make the deal.
• Credit Cards- With a good credit rating and lots of cards, you could
be able to use $25,000-$75,000 worth of credit from your plastic.
Interest rates are high, but access to money can’t be beat. This
resource should be used with caution.
• Owner Financing- Buying a business? Ask the seller if he or she
will be willing to sell it to you on a contract.
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Stages of Financing

It is important to understand that there are different stages of

financing, and different types of money available for the different stages. The
four basic financing needs of businesses are:
• Seed money
• Startup capital
• Working capital
• Growth capital

• Seed money is the money needed to develop an idea. It is used for

research and development, to create prototypes, to research the
market and to write a business plan. Money for this stage generally
comes from personal finances or friends and family. Investors are
rarely interested in investing in this early stage. However, the SBIR
program can be an excellent resource for this stage.
• Startup capital is used to take the business concept to the
marketplace. It pays for initial equipment and all expenses of getting
the enterprise underway. Startup money comes from personal
finances, friends, family and sometimes investors and banks if the
concept is very strong and the management team looks good.
• Working capital is used for financing inventories, accounts receivable
and the cash necessary to operate the business. When a business is
perking along quite well and has a good track record for growth, then
working capital is the easiest money to attract. Banks are traditional
financiers for working capital and factoring companies also play a role
here.
• Growth capital is used for financing a plant expansion, purchasing
new equipment, or training new people for the growth of your
business. Traditionally, growth is financed by the profits of the
operations. Other sources for growth capital include venture capitalists,
stockholders and taking your company public.

SBA LOAN PROGRAMS

U.S. SMALL BUSINESS ADMINISTRATION
FEDERAL BUILDING, ROOM 4001
100 EAST B ST
PO BOX 44001
CASPER, WY 82602-5013
Telephone: (307) 261-6500

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 FAX: (307) 261-6535
www.sba.gov

SBA 7(a) LOAN GUARANTEE PROGRAM

The Small Business Administration (SBA) offers loan guarantees to
commercial lenders making loans to small business for working capital,
inventory, machinery, land, buildings, purchases of businesses and other
“new money” projects. See the table at the end of this module for complete
program information.

Eligibility

An applicant must be a small business an defined by the

SBA. The definition is expressed in average annual receipts for the last three
years, or number of employees. The size standard used depends upon the
North American Industry Classification System (NAICS) codes for the type of
industry. The following are typical size limits for broad categories of
businesses:

• Retailing – annual sales of $7,000,000 or less over a 3 year

average.
• Manufacturing - are generally limited to 500 or fewer full time
equivalent employees.
• Specialty Contractors - $14,000,000
• Construction Contractors - $33,500,000

Loans may be any size, from small to up to $2,000,000 with the SBA
guaranty not exceeding $1,500,000 to any one borrower.
Certain loans are ineligible for SBA guaranteed loans such as loans for
investments, speculation, and SOME landlord-tenant relationships. Contact
your SBA office for further information.
Projects can be any size, but SBA’s share of the 7(a) financing cannot
exceed $1,500,000 to any one applicant/borrower, including any existing SBA
loans.

Terms

SBA guaranteed percentage to the lender is up to 85% for amounts of

$150,000 or less, and up to 75% for amounts over $150,000. Interest rates
are indexed to the NY prime rate as published in the Wall Street Journal. The
interest rate is negotiated between the borrower and the private lender but
may not exceed the SBA cap of 2.25% over NY prime for loan terms of less
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than 7 years, 2.75% for 7 years or longer. The interest rate may be fixed or
variable. To encourage lenders to make smaller SBA loans, SBA allows a
lender to charge higher interest rates on loans of $50,000 or less. See your
lender or SBA for exact details on these interest rates for loan of less than
$50,000.The guaranty fee is based on the size of the loan. The guaranty fee
can be included in the amount of the loan requested.

Guaranty Fees
Loan Size (Total Amount) Guaranty Fee (Based on
Guaranteed Portion)

0 to $150,000
2% (lender allowed to retain
25% of this fee to cover costs of
making smaller loans)

$150,001 to $700,000 3%

$700,001 to $1,333,333 3.5%

Over $1,333,333 3.75%

*Note: Short term loans of 1 year or less have a guarantee fee of .25%
Term of the loan is determined on a case by case basis, and is based
on the use of proceeds, and applicant’s ability to pay, subject to the following
maximum maturities:
• Working Capital - up to 7 to 10 years
• Machinery & Equipment - up to 10 to 25 years
• Real Estate - up to 25 years

CATEGORIES OF LOANS SBA Guaranteed Loans

• 7(a) Guaranteed Loans (so-called because they are under
Section 7(a) of the Small Business Act), are business loans made
by commercial lenders, partially guaranteed by SBA. The
majority of SBA guaranteed loans are usually long term (over
one year).
The use of loan proceeds ranges from working capital, inventory,
machinery, land, buildings, purchase of existing businesses
and other “new money” projects.

• Express Loans for working capital purposes, up to$350,000, can

be made by an SBA Express approved lender. Express working
capital loans in most instances are made for 12-months or less,
but the lender and SBA can make the term up to 7-years. If the
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 term is twelve months or less, the guaranty fee to SBA is only 1/4
of 1% of the amount guaranteed by SBA. These Express working
capital loans can be revolving or lines of credit. The lender and
its policies will dictate the loan terms and conditions following its
own internal policies. The Express Loan Program and its
documentation are minimized to encourage more use by lenders.
The Express loans carry a 50% guaranty which is a lower
guaranty than the standard SBA 7(a) loan.

• Express Loans for equipment purchases and other business

needs that require a longer loan term also offer limited lender
documentation for easier processing. The maximum Express
loan amount is $350,000.

• Rural Lender Advantage Loans (RLA) are a derivative of the

regular SBA 7(a) guaranty loan. The advantage to the lender
using RLA is that loans for $350,000 or less can be processed
with less front-end documentation and still receive 85% or 75%
guaranty. Refer to SBA for more details.

• Patriot Express loans offer simple reduced front-end loan

documentation that encourage lenders to use the program by
giving the lender the normal 7(a) guaranty percentage of 85% or
75% on a easy to process SBA loan. The lender must be an
approved Patriot Express lender. Patriots are defined as being
veterans, the spouses of veterans, or persons who have been in
the Reserves and National Guard. Please see SBA for more
complete details on this Patriot Express Loan Program.

SBA Loan Applicants must demonstrate:

• Capability to convert short-term assets into cash.

• Sufficient management ability, experience, and commitment
necessary for a successful operation.
• Capability to perform, and collect payment for that performance.
• A feasible business plan.
• Adequate equity or investment in the business
• Capability of providing required updates on the status of current
assets.
• Pledge sufficient assets to adequately secure the loan.
• Good character.

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 • The CapLine Working Capital Loan Program - The CAPLine Program
is still in existence, however, it is rarely used in 2008 because most
of its features have been replaced by the SBA Express loans. The
CAPLine loan program is a working capital loan program for large
loans. Lenders are no longer familiar with this program, but it is
worth mentioning. The lender has a high responsibility for
monitoring the borrower and its business which makes it a labor
intensive program to use. In most cases, just refer the borrower
and the lender to the SBA Express loan program for working capital.
See SBA lending personnel for more information on CAPLine if needed.

Special Purpose Loans

1. Export Express Loan: This program follows along the similar lines of
Express loans, however, for working capital the Export Express Loan
has a maximum of $250,000. Lenders are encouraged to use the
Export Express Loan Program because of its ease of use and
delegated authority to the lender. For more detail on this program call
Mr. Dennis Chrisbaum, SBA –International Trade Office - Denver
(303)844-6622 EX16.

2. Export Working Capital Program (EWCP): SBA guarantees (up to

the lesser of $1,000,000 or 90% of the loan amount) short-term
working capital loans made by participating lenders to small business
exporters. Loan maturities may be for up to three years with annual
renewals.
Proceeds can be used only to finance export transactions, and
may be used to acquire inventory, pay the manufacturing costs of
goods for export, purchase goods or services for export, support
standby letters of credit, for pre-shipment working capital, and for
post-shipment foreign accounts receivable financing. Loans can be for
single or multiple export transactions. Applicant must be in business
for one full year at the time of application, but not necessarily in the
exporting business.
Collateral: Borrower must give SBA a first security interest
sufficient to cover 100 percent of the EWCP loan amount. Collateral
must be located in the United States, its territories, or possessions.

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 Applicant must submit cash flow projections to support the need
for the loan and the ability to repay, and must continue to submit
progress reports after the loan is made.
SBA does not limit the amount of extraordinary servicing fees
under the EWCP program. Neither does SBA limit the interest rates,
but monitors them for reasonableness.
For further information, contact:
Dennis Chrisbaum
International Trade & Finance Officer, SBA
U.S. Export Assistance Center
1625 Broadway, Suite 680
Denver, CO 80202
(303) 844-6622 or (303) 844-5652

3. International Trade Loans: Loans to small businesses that are

engaged or preparing to engage in international trade; or adversely
affected by import competition.
Applicant must establish that:
a. Loan proceeds will significantly expand an existing export market
or develop new export markets.
b. Applicant business is adversely affected by import competition.
c. Upgrading facilities or equipment will improve the applicant’s
competitive position.
d. Applicant must have a business plan reasonably supporting its
projected export sales.
Use of proceeds—Borrower may use loan proceeds to acquire,
construct, renovate, modernize, improve, or expand facilities and
equipment to be used in the United States to produce goods or
services involved in international trade, and to develop and penetrate
foreign markets.
Amount of guarantee—SBA can guarantee up to $1.25 million, less
the amount of SBA’s guaranteed portion of other loans outstanding to
the borrower under SBA’s regular lending program. Financing can be a
combination of fixed-asset financing (cannot exceed $1,000,000), and
working capital, supplies, and EWCP assistance (cannot exceed
$750,000).

4. Energy Conservation: In 2008, this program is rarely used because

the 7(a)

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 loan, the Express, the Patriot Express, and the Rural Lender Advantage
Loan Programs are easier to use and can accomplish similar results,
provided the borrower meets the normal SBA eligibility and credit
standards.

5. Pollution Control: In 2008, this program is rarely used because the

SBA 7(a)
guaranty, the Express, the Patriot Express, and the Rural Lender
Advantage loan programs can accomplish similar results with less loan
preparation difficulty.

6. Special Considerations to Veterans: Please refer to the Patriot

Express Loan Program for more details. A commercial lender must be
approved by SBA to use this loan program. SBA has been and
continues to encourage lenders to apply for the Patriot Express lender
designation.

Veterans of the armed forces have fought to maintain the freedom that
has made our country strong. SBA wants veterans to receive the
benefits of all of the programs the Agency provides. To ensure this,
the Administrator announced in a policy statement in May 1982 that
veterans will be given “special consideration” in Agency programs.
Special consideration involves unique management training programs
specifically for veterans, processing veterans’ loan applications before
non-veterans’ loan applications received the same day, monitoring
loan and procurement activities to measure veteran participation,
coordinating training and counseling activities for veterans with other
Agency departments. In each local SBA office, there is a person
designated as the Veterans’ Affairs Officer (VAO). This person should
be the veteran’s initial contact and resource person for information on
SBA programs.

Application Process for Section 7(a) Loans:

The business person should prepare an outline of the requested
project. A business plan is very helpful for both the applicant and lender to
understand the project. A detailed cash flow projection is helpful (and will be
required by the lender/SBA on a start-up business), with appropriate
footnotes and explanations of assumptions about sales, expenses, accounts
receivable and payable cycles, and flow of funds in the business.
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 For existing businesses, three years of historical trend studies is
required using past balance sheets, income statements, and tax returns. For
new businesses projected sales supported by underlying assumptions and
market conditions is needed.
Project presentation should be made to the commercial lender. SBA
guaranty applications can be obtained from lender.
All Wyoming banks, some federal saving banks, and some non-bank
lenders participate with SBA to produce SBA guaranteed loans.

TERMS (FOR 7(a) LOANS)

Loan maturities are generally up to 7 years for working capital, up to
10 years for machinery and equipment, and up to 25 years for real estate.
Interest rates are negotiated between borrowers and lenders and are
generally set at market rates, subject to SBA maximums of 2.25 points above
the prime rate for loans of less than seven years maturity and up to 2.75
points above the prime rate for loans of seven years and longer. Loans
under $50,000 are subject to slightly higher rate caps.
Borrowers can use loan proceeds for legitimate business purposes,
including working capital and expanding, renovating or purchasing a
business, machinery and equipment, or inventory. Loan proceeds cannot be
used for distribution to owners or principals or for payment of personal debt.
Applications for purchasing an existing business must include a copy of
the terms of sale, financial statements on the existing business, a statement
on the benefits the business receives as a result of the change of ownership,
and a statement as to the relationship between the buyer and the seller.

SBA 504 DEVELOPMENT COMPANY LOAN PROGRAM

Loan proceeds may only be used for the acquisition, construction, or
installation of fixed assets, i.e. real estate projects. Long lived equipment ,
conservatively with a life of 10-years or more and not rolling stock, also
qualify but are not as frequently financed under this 504 Program. Job
creation and community development are a high priority under this program.
SBA, through Certified Development Companies (CDC’s) provides long-term
fixed rate financing for a portion of the total project. A Lender finances up to
50% of the project (non-SBA guaranteed), with a first mortgage on the
property. The SBA/CDC 504 loan finances up to 40%, with a second
mortgage. The Applicant’s equity provides a minimum of 10% of the project.
The loan is funded from the sale of debentures, which SBA guarantees.
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Eligibility:

An applicant must be a small business as defined by the SBA. The size

standards for the 504 programs are, the business must not have a tangible
net worth in excess of $8.5 million, and must not have an average net
income after Federal income taxes (excluding any carry-over losses) for the
preceding two years in excess of $3.0 million, after tax. Or, the size
standards for 7(a) may be used.

Terms:

Second mortgage debentures are provided in amounts generally up to

$1,500,000 or 40% of total project cost, whichever is less. The interest rate
is fixed and varies according to the current rate of debenture sales. Loan
terms are for 10 to 20 years.
Up-front (out of pocket) costs are $2,500 legal fee, cost of title
insurance, filing fees and administrative fees of 2.875% of the total
debenture, all which can be financed over the term of the loan. 504 loans for
manufacturing can go as high as $4,000,000.

7(a) and 504 Loan Programs

A new provision has been added that the ownership requirements to
determine the eligibility of a small business concern that applies for
assistance shall be determined without regard to any ownership interest of a
spouse arising solely from the application of the community property laws of
a state for purposes of determining marital interest.
Businesses should contact a Certified Developmental Company. The
CDC will assist in finding a private Lender if one has not already been
contacted. The project application will be reviewed by the private Lender,
the CDC, and the SBA.

STATEWIDE CDC:
Frontier Certified Development Company
232 East 2nd St, Suite 300
Casper, Wyoming 82601
(307) 234-5351 FAX (307) 234-0501

CDC LIMITED TO SERVING WYOMING COUNTIES OF UINTA,

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 LINCOLN, TETON, SWEETWATER, & SUBLETTE:
Mountain West Certified Development Company
2595 East 3300 South
Salt Lake City, UT 84109
(801) 474-3232 FAX (801) 493-0111

SURETY BOND GUARANTEE PROGRAM

SBA can guarantee bonds for contracts up to $2 million, covering bid,
performance and payment bonds for small and emerging contractors who
cannot obtain surety bonds through the regular commercial channels. This
program is not limited to SBA borrowers.

Eligibility:
Businesses in construction and service industries can meet SBA size
eligibility standards if their average annual receipts, including those of their
affiliates, for the last three fiscal years do not exceed $6 million.
Any contract bond (bid, performance or payment) is eligible if it is:
• Covered by the Contract Bonds section of the Surety Association of
America Rating Material.
• Required by the invitation to bid.
• Executed by a surety company that is acceptable to the U.S. Treasury
(Circular 570) and qualified by the SBA.
Contractor should apply for a specific bond with a surety company of
their choice, providing background, credit, and financial information required
by the surety company and the SBA.
The contractor must use the following forms, which are available from
the SBA:
• SBA Form 994, “Application for Surety Bond Guarantee Assistance.”
• SBA Form 912, “Statement of Personal History.”
• SBA Form 994F, “Schedule of Uncompleted Work on Hand.”

The surety company processes and underwrites the application in the

same manner as any other contract bond application, and decides
whether to:
• Execute the bond without the SBA guarantee.
• Execute the bond only with the SBA guarantee.
• Decline the bond even with the SBA guarantee.

If the surety company decides to require the SBA guarantee, it then

completes the required forms and forwards it to SBA. If SBA approves the
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application, the authorized SBA official signs a guarantee agreement and
returns it to the surety company.

For further information contact:

Walter Lee/Surety Bonds Specialist
Denver, CO 80201-0660
(303) 844-5231 ext. 254; FAX (303) 844-6490

FEES FOR AN SBA SURETY BOND GUARANTEE:

The small business pays the SBA processing fee based on a percentage
of the contract amount (call SBA for current rate).
• When the bond is issued, the small business pays the surety
company’s bond premium.
• The surety company pays the SBA a guaranty fee.

SBA LOAN APPLICATION PROCESS

To apply for a guaranteed loan, applicants should take all available
financial and other business information to a financial institution, preferably
their bank of account. The information should include a written statement
describing the business and its history, the proposed use of the loan
proceeds and an explanation of how the loan will be repaid. Applicants
should always request that their lender make the loan directly.
If the lender is unable or unwilling to make the loan, the applicant can
request the lender consider making the loan under the SBA Guaranty
Program. If the lender agrees to participate with the SBA, the applicant then
completes a formal application for forwarding to the SBA.
In the case of guaranteed loans, SBA generally deals with the private
lender, not with the loan applicant unless directed to by the lender. The
lender interacts with the applicant and services the loan. For more
information from the SBA, consult the SBA web page, www.sba.gov You
may call the Wyoming SBA 307-261-6500 and ask for an SBA Loan Specialist.

STANDARD APPLICATION FORMS

A 7(a) Submission Checklist can be found on the SBA web page and
the various SBA loan forms for various programs can be found on the SBA
web page www.sba.gov under “Forms”. Work with the lender in conjunction
obtaining the various needed financial disclosure statements. Your business
plan should contain many of the same exhibits and similar information. Call
SBA-Wyoming as needed 307-261-6506.

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THE SMALL BUSINESS INNOVATION RESEARCH (SBIR) PROGRAM
SBIR is a highly competitive program that encourages small business
to explore their technological potential and provides the incentive to profit
from its commercialization. By including qualified small businesses in the
nation’s research and development (R&D) arena, high-tech innovation is
stimulated and the United States gains entrepreneurial spirit as it meets its
specific research and development needs.
SBIR targets the entrepreneurial sector because that is where most
innovation and innovators thrive. However, the risk and expense of
conducting serious R&D efforts are often beyond the means of many small
businesses. By reserving a specific percentage of federal R&D funds for
small business, SBIR protects the small business and enables it to compete
on the same level as larger businesses. SBIR funds the critical startup and
development stages and it encourages the commercialization of the
technology, product, or service, which in turn, stimulates the U.S. economy.
(Currently $1.6 billion is available annually – the largest seed capital fund
available to Wyoming small businesses.)
Since its enactment in 1982, as part of the Small Business Innovation
Development Act, SBIR has helped thousands of small businesses to
compete for federal research and development awards. Their contributions
have enhanced the nation’s defense, protected our environment, advanced
health care, and improved our ability to manage information and manipulate
data.
Small businesses must meet certain eligibility criteria to participate in
the SBIR program:
• American-owned and independently operated
• For-profit
• Principal researcher employed by business (50+ %)
• Company size limited to 500 employees

Each year, ten federal agencies are required by law to reserve a

portion of their R&D funds for award to small business.

• Department of Agriculture (USDA)

• Department of Commerce [DOC-includes National Institute of
Standards and Technology (NIST) and National Organization of
Atmospheric Administration (NOAA)]
• Department of Defense (DoD)
• Department of Education (DOEd)
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 • Department of Energy (DOE)
• Department of Health and Human Services or National Institutes of
Health (NIH)
• Department of Transportation (DOT)
• Environmental Protection Agency (EPA)
• National Aeronautics and Space Administration (NASA)
• National Science Foundation (NSF)

These agencies designate R&D topics and accept proposals.

Following submission of proposals, agencies make SBIR awards based
on small business qualification, degree of innovation, technical merit, and
future market potential. Small businesses that compete successfully then
begin a three-phase program:
• Phase I is the startup phase. Awards of up to $100,000 for
approximately 6 months support exploration of the technical
merit or feasibility of an idea or technology.
• Phase II awards of up to $750,000, for as many as 2 years,
expand Phase I results. During this time, the R&D work is
performed, a prototype is developed, and the developer
evaluates commercialization potential. Only Phase I award
winners are considered for Phase II.
• Phase III is the period during which Phase II innovation moves
from the laboratory into the marketplace. No SBIR funds support
this phase. The small business must find funding in the private
sector or other non-SBIR federal agency funding.
The US Small Business Administration plays an important role as the
coordinating agency for the SBIR program. It directs the 10 agencies’
implementation of SBIR, reviews their progress, and reports annually to
Congress on its operation.
All of SBA’s programs and services are extended to the public on a
nondiscriminatory basis.

THE WYOMING SBIR/STTR INITIATIVE (WSSI)

The Wyoming SBIR/STTR Initiative (WSSI) was formed in 1996 and is a
joint venture sponsored by the Wyoming Business Council (WBC) and
administered by the University of Wyoming. The purpose of the initiative is
to assist Wyoming entrepreneurs and innovative small businesses in
obtaining these federal SBIR grants to fund the development of their
innovative new product concepts.

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 A $5,000 Phase 0 grant is available to resident Wyoming individuals
and small businesses that intend to compete for SBIR awards. The WSSI
Phase 0 program solicits competitive proposals each month. The purpose of
the grant is to enable the recipient to access the resources necessary to
prepare a quality, competitive Phase I SBIR proposal. Proposals are due no
later than 5 PM on the first day of each month. Award announcements are
usually made by the tenth of that month. (Currently 2 awards/month are
available.)
Complete WSSI Phase 0 program information aw well as detailed
information on the SBIR program can be found on the WSSI web site:
www.uwyo.edu/sbir
The Small Business Technology Transfer (STTR) program is similar to
the SBIR program but with an emphasis on the transfer of technology from
the nonprofit research institutions to small businesses for the purpose of
commercializing the technology. Five federal agencies participate in the
funding of the STTR program – DOD, DOE, NIH, NASA, & NSF.
For more information on the SBIR Program, please contact:
Kelly Haigler Cornish, WSSI Outreach Coordinator
WSSI@uwyo.edu
307-766-2520 or toll free 866-703-3280
Dept. 3672, 1000 E. University Ave.
Laramie, WY 82071

SBA 7(a) Loan Table:

7(a) LOANS: Standard, PLP, SBAExpress, Rural Lender Advantage, and Patriot
Express

Pro Standard 7(a) Preferred SBAExpress Rural Lender Advantage Patriot Express (est.
cess Lenders (est. 1995) (est. 2007) 2007)
Program
Attributes (PLP)

Geographic Nationwide Nationwide Nationwide Region VIII (Currently) Eligible small business
Area must be owned and
controlled (51 percent
or more) by one or
more of the following
groups: veteran, active
duty military, reservist
or national guard
member or a spouse of
any of these groups, or
a widowed spouse of a

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 service member or
veteran who died of a
service-connected
disability.

Borrower Extensive. SBA Form 4 Same as Form 1919 SBA Form 2301, Part A. Form 1919 requires
Portion of plus required Standard 7(a). requires More abbreviated abbreviated information
SBA attachments. All No credit abbreviated information than Form 4. and no exhibits. No
Application reviewed by SBA loan review by SBA. information and SBA does not receive credit review by SBA.
officers for credit and no exhibits. No supporting documentation.
eligibility. credit review by
SBA.

Type of Lenders that do not have Lenders that Lenders that Designed for low volume Lenders that have
Lender delegated authority from have proven have proven their SBA lenders that are not proven their knowledge
SBA. their knowledge of proficient with SBA’s of eligibility and credit
knowledge of eligibility and eligibility and credit and are, therefore,
eligibility and credit and are, requirements - Limited to have delegated
credit and are, therefore, have lenders approving 20 or less authority by SBA.
therefore, delegated SBA loans annually.
have authority by SBA.
delegated
authority by
SBA.

Lender’s Extensive. SBA Form 4-I Same as Form 1920 which SBA Form 2301, Part B. Form 1920 which is
Portion of plus numerous exhibits Standard 7(a) is very Abbreviated information very abbreviated and
SBA from borrower. Also BUT SBA does abbreviated and about applicant including does not include any
Application extensive Eligibility not review does not include lender’s credit memo and a credit analysis.
Questionnaire which is prior to issuing any credit briefer eligibility Eligibility checklist is
optional. approval loan analysis. questionnaire. brief.
no. Eligibility
checklist is brief.

Target Proc. 6 business days. 3 days- 1 day 1 day 3-5 days 1 day
time CLP

Cent. Yes – Complete review of Yes. Yes. Abbreviated Yes – SBA makes eligibility Yes. Abbreviated review
Processing credit and eligibility by Abbreviated review of and credit determination, of eligibility checklist
SBA loan officers review of eligibility with credit scoring used to only by SBA loan
eligibility checklist only by streamline/expedite SBA’s officers
checklist only SBA loan officers. review.
by SBA loan
officers.

E-tran No Available. Available. Not yet. Available.

Available

Maximum General rule is gross loan Same as Limited To Limited To $350,000 (gross) Limited to $500,000
loan amount limited to Standard 7(a) $350,000 (gross) (gross)
amounts $2,000,000 per loan.

SBA guaranty amount

limited to $1,500,000.to
one borrower (and its
affiliates).

Percent of 85% for loans of Same as 50% Same as Standard 7(a) Same as Standard 7(a)

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Guaranty $150,000 or less. Standard 7(a)

75% for loans over

$150,000

Suspension 13 CFR, part 120 governs Same as Modified rules Same as Standard 7(a) Same as SBAExpress
of the eligibility. Also SOP 50 Standard 7(a) governing
following 10. No suspension of interest rates and
SBA Policies any of these. fees a lender may
charge. Also the
SBAExpress
Guide describes
differences in
SBA’s policies.

Maturity Depends on use of Same as Maximum of 7 Same as Standard 7(a) Same as SBAExpress.
proceeds and which loan Standard 7(a) years for
program used. Revolving Lines
Maximum of 25 years of Credit.
reserved for fixed assets Otherwise, same
including real estate. as Standard 7(a).

Interest Prime + 2.25% for Same as Loans $50,000 or Same as Standard 7(a) Same as Standard 7(a)
Rates maturities under 7 Standard 7(a) less: Prime +
years. 6.5%.

Prime + 2.75% for Over $50,000:

7years +. Prime +4.5%

Rates can be higher by

2% for loans of $25,000
or less; and 1% for loans
between $25,000 and
$50,000.

Collateral Available collateral Same as $25,000 or less, Same as Standard 7(a) Same as SBAExpress up
Policy (liquidation value) up to Standard 7(a) no collateral to $350,000. Over
loan amount. required. Above $350,000, the lender
$25,000, Lenders must secure the loan
may use their with all available
own collateral collateral.
policies that they
apply to their
non-SBA-
guaranteed
loans.

Guaranty Maturity of 12 months or Same as Same as Same as Standard 7(a) Same as Standard 7(a)
Fees less = 0.25% Standard 7(a) Standard 7(a)

(Multiply Maturities over 12 Months

percentage
times Gross loan: $150,000 or
guaranteed less = 2%
amount, not
gross Gross loan $150,001 -
amount.) $700,000 = 3.0%

Over $700,000 = 3.5%

3.75% on guaranteed

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 amount over $1 million.

On-going guaranty fee =

0.494%

Revolving No No Yes No Yes

L/C available

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Module 9 Training Checklist
• Business Counselor _________
• Read Module 9 _____ Date
• Attend ½ day training _____Date
• Case Study #3 _____ Date

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