Equipment loans and Microloans

Equipment loans that are guaranteed by certain federal government programs may be available for your business. Some of these programs are offered by the Small Business Administration (SBA) and the Department of Agriculture (USDA).

Equipment Loans: Microloans

The MicroLoan Program provides very equipment loans to start-up, newly established, or growing small business concerns. Under this program, SBA makes funds available to nonprofit community based lenders (Microlender Intermediaries), which, in turn, make loans to eligible borrowers in amounts up to a maximum of $35,000. The average loan size is about $13,000. Applications are submitted to the local intermediary and all credit decisions are made on the local level. Microloans may be used for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. Proceeds cannot be used to pay existing debts or to purchase real estate.

Terms, Interest Rates, and Fees

Loan terms vary according to the size of the loan, the planned use of funds, the requirements of the intermediary lender, and the needs of the small business borrower. The maximum term allowed for a Microloan is six years. Interest rates vary, depending on the intermediary lender and costs to the intermediary from the U.S. Treasury. Generally, these rates begin at Prime + 4.75%.

Collateral

Each intermediary lender has its own lending and credit requirements for equipment loans. Generally, intermediaries require some type of collateral and the personal guarantee of the business owner. You can get more information on Microloans and equipment loans by going to the SBA website. (note:clicking this link will open a new window)

The Business & Industrial (B & I) Guaranteed Loan Program 

The purpose of the Business & Industrial (B&I) Guaranteed Loan Program is to improve, develop, or finance business, industry, and employment and improve the economic and environmental climate in rural communities. This purpose is achieved by bolstering the existing private credit structure through the guarantee of quality loans, which will provide lasting community benefits.

General Program Requirements

A borrower may be:

• An individual
• A cooperative organization, corporation, partnership, or other legal entity organized and operated on a profit or nonprofit basis
• An Indian tribe on a Federal or state reservation or other Federally recognized tribal group, or
• A public body.

A borrower must be engaged in or proposing to engage in a business that will:

Individual borrowers must be citizens of the United States or reside in the U.S. after being legally admitted for permanent residence. Corporations or other non-public body organization-type borrowers must be at least 51 percent owned by persons who are either citizens of the U.S. or reside in the U.S. after being legally admitted for permanent residence. B&I loans are normally available in rural areas.

Loan Terms

The interest rate for the guaranteed loan will be negotiated between the lender and the applicant and may be either fixed or variable as long as it is a legal rate. Interest rates are subject to Agency review and approval. The variable interest rate may be adjusted at different intervals during the term of the loan, but the adjustments may not be more often than quarterly. The annual renewal fee is paid once a year and is required to maintain the enforceability of the guarantee as to the lender. There is also an up front guarantee fee of 2 percent. A limited amount of loans may be guaranteed with a 1 percent fee, subject to meeting regulatory requirements. The maximum repayment for loans on real estate will not exceed 30 years; machinery and equipment repayment will not exceed the useful life of the machinery and equipment purchased with loan funds or 15 years, whichever is less; and working capital repayment will not exceed seven years. The total amount of Agency loans to one borrower must not exceed $10 million. The Administrator may, at the Administrator’s discretion, grant an exception to the $10 million limit for loans of $25 million under certain circumstances. The Secretary may approve guaranteed loans in excess of $25 million, up to $40 million, for rural cooperative organizations that process value-added agricultural commodities. Go to the Dept. of Agriculture website to learn more. (note: clicking here will open a new window.)

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