California Small Business Loan Guarantee Program
California Small Business Loan Guarantee Program is part of the United States’ unique Small Business finance program to assist with the selling and buying of privately held businesses and real estate. These programs are under the administration of the Small Business Administration or SBA.
Small businesses use the SBA 7(A)-loan program for business acquisitions. Similarly, the SBA 504 loan program is for real estate transactions.
These SBA loan programs are unique to the United States. Other countries around the world do not have a similar program to support their business owners. In Canada, for example, if a business owner wants to sell their business, they typically require the buyer to provide an acceptable down payment and the seller then takes the risk and provides the balance as seller finance.
Because of the success of the program in the United States, Australia is considering a similar business model, but they are yet to implement it as they are not sure whether it will be politically acceptable.
Loan Alternative
Most business owners with a business in California may not realize but there is an alternative or additional option to an SBA 7(A) loan.
The program is called the California Small Business Loan Guarantee (CSLB) Program and is under the management of the iBank.
Because it is a State of California initiative, this loan program is only available to a business that is in California and the employees are in California. There are some tweaks to this rule. For example, if the business has most of its employees living in California but a small percentage outside California, the lender can adjust the loan amount by considering the percentage of employees outside California.
Features (CSLB)
Some of the highlights of a California State Loan Guarantee Program include:
- The primary use of this loan program is for borrowers that are NOT eligible for SBA financing.
- A typical California State Loan Guarantee Program loan is for a period of 7 years. This is shorter than the SBA 7(A) loan which is typically 10 years. The California State Loan Guarantee Program may extend longer than 7 years, with consideration given on a case by case basis.
- The California State Loan Guarantee Program assists banks that offer these loans by providing a maximum loan guarantee for 80% of the loan to a maximum of $1.25 million. For example, if a bank offers a business a loan of $2 million, the maximum amount of loan guarantee the bank will receive is 80% of $1,250,000 or $1 million. If a bank, therefore, approves a loan of up to $2 million, they are opening themselves up to a $750,000 loan underwriting exposure with no guarantee.
- If a borrower successfully receives a loan, there is a 2.5% loan fee of the guarantee portion.
- A condition of the loan is that the borrower may not have more than 750 employees.
Benefits of California Small Business Loan
There are several positive features of the California Small Business Loan Guarantee Program. These include:
- A loan is available to use for nearly any industry; even the cannabis industry is eligible.
- A loan is also available to use for a Stock sale or an Asset sale.
- A loan can be used to buy out a partner, unlike an SBA loan.
- Loans may be used for different purposes including:
- Business acquisitions,
- Buying a franchise,
- Bridge Loans,
- Equipment purchases,
- Working Capital,
- Inventory,
- Building Purchases and Construction.
How to use a California Small Business Loan Guarantee Program
If the time is right to value and sell your California business, your chances of success increase with having your business pre-approved for finance so if a qualified buyer comes along, both parties are able to work together and close the sale.
There is typically a quick turnaround time on getting a loan approved with fewer forms required than an SBA loan.
An accurate business valuation is the first step to successfully sell a business.
With an accurate business valuation in place, there are many steps to successfully sell a business. Here is a summary of the Twenty Four steps it typically takes to sell a business.
If you have questions about selling your business or would like more detail, the link to this article about selling a business will help.
If you still have questions about valuing or selling your California business, you are welcome to schedule a 30-minute conversation. Simply click this link to schedule a call with me and find a date and time that works for you. The rest happens automatically.
