Following the success of a pilot program in Texas, the Small Business Administration has brought to Utah a new loan program that features a one-page application and less hassle for small-business borrowers.
Stan Nakano, SBA district director for Utah, said the low documentation loan, commonly called LowDoc, is for entrepreneurs starting a new business, businesses with average annual sales for the preceding three years of less than $5 million and less than 100 employees, and for firms that satisfy other statutory criteria.LowDoc is for small-business loans of $100,000 or less, with SBA guaranteeing up to 90 percent of the loan. Applicants fill out the front page of applications; the lender fills out the back. For loans of more than $50,000, the applicant includes a copy of Schedule C of his federal income tax return or the front page of the corporate or partnership returns for the past three years.
Nakano said personal financial statements are required for all guarantors.
All loans must be adequately secured, but loans generally are not declined where inadequate collateral is the only unfavorable factor.
The program was generated by borrowers and lenders who complained that the loan process was too cumbersome. Just as with most SBA loan programs, the borrower must apply for a loan from the lender who will ask SBA to consider a guarantee.
Interest rates are tied to the prime rate and may be fixed or variable, but they cannot exceed SBA minimums of 2.25 percent over prime for loans of less than seven years, 2.75 percent over prime for loans of seven years or longer and slightly higher rates for loans under $50,000.
Nakano said the new program focuses on personal credit history, character and business experience. It is for people who don't have a lot of collateral or personal money to put into a business.
He said the program was tried in a pilot program in Texas and the number of loans of less than $100,000 increased dramatically. He expects the program to be popular in Utah, especially among businesses owned by women or minorities.