The Facts About the Minority Prequalification Loan Program

The Facts About ... The Minority Prequalification Loan Program U.S. Small Business Administration SBA Championing America's Entrepreneurs The Facts About ... Minority Prequalification Loan Program The Minority Prequalification Loan Program helps eligible small businesses - those owned and operated by members of racial or ethnic minority groups - access capital. The program is a coordinated effort of both the public and private sectors. It uses local, private sector nonprofit and for-profit organizations as intermediaries to assist in the loan application process. A prospective borrower works with the intermediary to develop a viable loan application. The application is then submitted directly to the SBA for con- sideration of a loan prequalification. On approval, the intermediary also can assist the applicant in locating a competitive lender. Who Is Eligible? Businesses that: * Are at least 51 percent owned and managed by a racial or ethnic minor- ity person(s); * Meet SBA 7(a) Loan Guaranty Program size standards and general eligi- bility criteria; and * Are not engaged in speculation or investment in rental real estate. The maximum loan amount under the Minority Prequalification Loan Program is generally limited to $250,000. The Prequalification Process Document Preparation The prospective borrower works with a local technical-assistance organiza- tion (intermediary), designated by the SBA, to prepare a business plan and complete a prequalification loan application. Application Submission The intermediary reviews credit information, performs a loan analysis, and submits the application to the SBA. Application Review The SBA reviews the completed application to determine whether it meets the requirements for a guaranteed loan and makes an approval decision. Qualification If the SBA approves the application, the agency issues a prequalification letter. This letter states the SBA's intent to authorize a loan guaranty. Lender Selection When an applicant receives the SBA's prequalification letter, the intermedi- ary can assist in locating a competitive lender interested in making an SBA-guaranteed loan. Required Documentation Business financial statements or tax returns and personal financial state- ments will be required from all owners and guarantors. Applications for new businesses will require submission of a business plan. If proceeds are to be used to purchase an existing business, a copy of the terms of sale and a financial statement on the existing business are required, as well as a statement of benefit to the business as a result of the purchase. If buyer and seller are related, that must be disclosed on the application. Use of Funds Loan funds can be used for typical business purposes such as working capi- tal, debt payment, equipment and inventory purchases, construction, and real estate purchases. Proceeds may not be used for distribution to prin- cipals or for payment of personal debt. The intermediary will require proof that credit card and refinanced debts are business-related and not personal. Interest Rates Applicants negotiate terms with the lender. Interest rates may be fixed or variable and are tied to the prime rate. For loans of less than seven years, rates may not exceed 2.25 percent over prime. For loans of seven years or longer, the maximum rate is 2.75 percent over prime. Loans under $50,000 may be subject to slightly higher rates. Maturity The length of time for repayment depends on the ability to repay and the use of the loan proceeds. Generally, the loan maturity will be between five and 10 years for working capital; up to 10 years for machinery and equipment; and up to 25 years for real estate, construction, or the purchase of equip- ment with a useful life of at least 25 years. Credit/Collateral Primary considerations include a willingness and ability to pay debts, as indicated by a good credit history; the likelihood that expected earnings will be sufficient to pay obligations; and the probability that the business has a good chance of achieving success with the requested financing. Normal- ly, business assets will be pledged, and personal assets when warranted. As with all 7(a) loan programs, loans will not be declined where inadequate collateral is the only unfavorable factor. All owners of 20 percent or more of the business are required to personally guarantee the note. Equity The applicant must have a reasonable stake in the business. Pilot Sites Baltimore, MD (410) 962-4392 Boston, MA (617) 565-5590 Columbia, SC (803) 765-5377 Detroit, MI (313) 226-6075 Fargo, ND (701) 239-5131 Helena, MT (406) 449-5381 Houston, TX (713) 773-6500 Kansas City, MO (816) 374-6708 Los Angeles, CA (818) 552-3210 Miami, FL (305) 536-5521 Milwaukee, WI (414) 297-3941 New York, NY (212) 264-2454 Philadelphia, PA (610) 962-3800 St. Louis, MO (314) 539-6600 Santa Ana, CA (714) 836-2494 Seattle, WA (206) 553-7310 This program may also be provided at other sites. Check with your local SBA office to see if it is available in your area. For More Information Information is power. Make it your business to know what is available, where to get it and, most importantly, how to use it. Sources of information in- clude: U.S. Small Business Administration * SBA District Offices * SBA OnLine (electronic bulletin board) * Business Information Centers (BICs) * One-Stop Capital Shops (OSCSs)** * Service Corps of Retired Executives (SCORE) * Small Business Development Centers (SBDCs) * U.S. Export Assistance Centers (USEACs)** * Women's Business Centers (WBCs)** ** Inquire at your local SBA office as to availability The SBA has offices located throughout the United States. For the one nearest you, look under "U.S. Government" in your telephone directory, or call the SBA Answer Desk at (800) U-ASK-SBA or (800) 827-5722. To send a fax to the SBA, dial (202) 205-7064. For the hearing impaired, the TDD number is (704) 344-6640. To access the agency's electronic public information services, you may call: SBA OnLine: electronic bulletin board (modem and computer required) * (800) 697-4636 (limited access) * (900) 463-4636 (full access) * (202) 401-9600 (D.C. metro area) Internet: using uniform resource locators (URLs) * SBA home page: www.sba.gov * SBA gopher: gopher.sba.gov * File transfer protocol: ftp.sba.gov * Telnet: telnet.sba.gov * U.S. Business Advisor: www.business.gov You may also request a free copy of The Resource Directory for Small Business Management, a listing of for-sale publications and videotapes, from your local SBA office or the SBA Answer Desk. Other Sources of Information * State economic development agencies * Chambers of commerce * Local colleges and universities * Libraries * Manufacturers and suppliers of small business products and services * Small business or industry trade associations Did You Know that the SBA - * has a portfolio guaranteeing over $29 billion in loans to 200,000 small businesses that other-wise would not have had such access to capital? * guaranteed over 52,700 loans totaling $10 billion to America's small businesses in fiscal year 1996? * extended management and technical assistance last year to nearly 850,000 small businesses through its 950 small business development centers and 13,000 SCORE volunteers? * provided more than 38,000 loans totaling $987 million to disaster victims for residential, personal-property, and business losses in fiscal year 1996? * has 7,000 private-sector lenders as partners providing their capital to small businesses? * has increased its venture-capital program with more private capital in the past two years than in the previous 15 years combined? * provides loan guaranties and technical assistance to small business exporters through U.S. export assistance centers in 15 cities? * can respond to written small business questions through the U.S. Business Advisor on the Internet (www.business.gov)? that minority-owned businesses - * have received 269 loans under the Minority Prequalification Loan Program since its inception in April 1995? * have obtained $26 million in loans, representing an average loan of $98,840, under the program? All of the SBA's programs and services are provided to the public on a nondiscriminatory basis. FS0067 (07/97)