February 26, / Q: How can I go about obtaining information required to apply for government grants and loans for a start-up small business if the initial partners do not have good credit? Or is personal credit not involved?

A: A poor personal credit history certainly makes it difficult to qualify for a loan. But the Small Business Administration's loan- guarantee programs improve your chances.

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The agency oversees the programs from its Washington headquarters, but commercial lenders licensed by the SBA nationwide actually issue the loans and handle the paperwork. The most active and expert lenders qualify for the SBA's streamlined lending programs. Under these programs, lenders are given partial or full authority to approve loans, which results in faster service.

To qualify, your business generally must be operated for profit and fall within the size standards set by the SBA:

* Service companies with yearly receipts not exceeding $5 million, with some exceptions (legal and accounting services generally will not qualify for SBA loans);

* Wholesale businesses employing fewer than 100 employees;

* Retailers with yearly revenues not exceeding $5 million, with some exceptions;

* General construction businesses with yearly incomes not exceeding $9.5 million;

* Special trade construction businesses with annual receipts not exceeding $7 million;

* Agricultural businesses with annual receipts not exceeding a half million dollars; and

* Manufacturing businesses employing between 500 and 1,500 people, depending on the type of product manufactured.

Generally, what the lender wants to know is the purpose of the loan, the history of the business and the business plan. If it's an existing business, you'll need to bring financial statements for three years, the schedule of terms for any outstanding debts, and the age of accounts receivable and payable.

You'll also need to bring details about your lease, the level of investment in the business by you or any co-owners, signed personal financial statements, a personal resume and projections of income, expenses and cash flow. If it's a start-up business, you'll need a projected opening-day balance sheet.

What the SBA looks for is good character, management expertise, a commitment to be successful, sufficient funds (for new businesses, this includes the resources to withstand start-up expenses and the initial operating phase), a feasible business plan, adequate equity or investment in the business, sufficient collateral and the ability to repay the loan on time from the projected operating cash flow.

Although SBA requirements may seem staggering to the owners of some start-ups, don't be scared away. The agency is one of the most popular sources of early-stage funding.

For example, most commercial lenders won't approve a $50,000 loan for a start-up business. But by requiring an applicant to secure an SBA loan guarantee from the Low Documentation (LowDoc) program, which provides the bank with a federal guarantee for repayment, the banker will be able to approve the loan.

The 7(a) Loan Guaranty Program is one of SBA's primary lending programs. It provides loans to small businesses unable to secure financing on reasonable terms through normal lending channels. The program operates through private-sector lenders that provide SBA- guaranteed loans. The SBA has no funds for direct lending or grants.

The specialized loans available through the 7(a) program include:

* LowDoc: Designed to increase the availability of funds under $100,000 and streamline/expedite the loan-review process.

* CAPLines: An umbrella program to help small businesses meet their short-term and cyclical working-capital needs with five separate programs.

* International Trade: Is appropriate if your business is preparing to engage in or is already engaged in international trade, or is adversely affected by competition from imports.

* Export Working Capital: Designed to provide short-term working capital to exporters in a combined effort of the SBA and the Export- Import Bank.

* Minority and Women's Pre-qualification Program: Pilot programs that use intermediaries to assist prospective minority and women borrowers in developing viable loan application packages and securing loans.

The SBA's microloan program works through intermediaries to provide small loans from as little as $100 up to $25,000.

The Certified Development Company Program, commonly referred to as the 504 program, makes long-term loans available for purchasing land, buildings, and machinery and equipment, and for building, modernizing or renovating existing facilities and sites. (Editor's Note: The exclusive 504 lender in the Augusta area is the CSRA Development Co. Contact them at (706) 210-2000.)

If SBA lending programs are not available, or if you fail to qualify, you still may want to consider a traditional commercial lender. That lender will probably require a third-party guarantor who is willing to co-sign on the loan.

Reach CPA Jeff Levine and attorney Andrew Sherman at answermen@fsb.com. To read more about small business visit www.fsb.com/krt.

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