Small Business Administration (SBA) Loan Agreement
A Small Business Administration (SBA) Loan Agreement is a legally binding contract between a borrower and a lender, facilitated by the SBA, that outlines the terms and conditions under which a loan is provided to a small business. These agreements are designed to help small businesses access financing by providing guarantees to lenders, thereby reducing the risk associated with lending to smaller, often less established, businesses.
The SBA Loan Agreement typically includes several key components:
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Loan Amount: The total sum of money being borrowed, which can vary significantly depending on the type of SBA loan program utilized (e.g., 7(a) loans, CDC/504 loans).
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Interest Rate: The percentage of the loan amount that will be charged as interest, which can be fixed or variable, and is often dictated by the SBA’s guidelines.
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Repayment Terms: Details regarding the duration of the loan, the payment schedule (monthly, quarterly, etc.), and any potential penalties for late payments.
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Collateral: Information on any assets pledged by the borrower to secure the loan, which the lender may claim if the borrower defaults.
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Personal Guarantee: A clause that may require the owners of the business to personally guarantee repayment of the loan, thus obligating them to repay the debt even if the business fails.
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Use of Proceeds: A description of how the loan funds can be used, which typically includes working capital, equipment purchases, real estate acquisition, or refinancing existing debt.
For example, if a small business seeks a 7(a) loan of $100,000 with a 6% interest rate over a 10-year term, the SBA Loan Agreement would specify these terms, including the repayment schedule and consequences of non-payment. The agreement serves to protect both parties by clearly outlining their rights and obligations.
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