During the worst of the credit crunch, even loans guaranteed by the U.S. Small Business Administration were hard to come by. But as secondary markets for these loans return, banks are again returning to the SBA guarantee program. Yes, even for short-term financing.

“The loan volume is way up from where it was,” says Therese Flaherty, director of the Wharton Small Business Development Center (SBDC). So even if you were turned away in the past last year, it might be worth another try now. Here’s what you need to know before you apply.

The SBA’s main loan program, the 7(a) loan-guarantee, can be used for working capital and even debt refinancing. Loans for working capital can be used for the following purposes:

  • payment for accounts payable;
  • inventory purchases;
  • seasonal financing;
  • contract performance;
  • construction financing;
  • export production; and
  • financing against inventory and receivables under certain conditions.

The terms of the loan are worked out between the bank and you, but they must follow certain guidelines. Here are some of the more notable rules:

  • The rates could be fixed or variable.
  • The most you can borrow is $2 million.
  • For fixed-rate loans of less than seven years for $50,000 or more, the interest rate can’t be more than the prime rate plus 2.25%.
  • For loans of seven or more years, the rate can’t be more than prime plus 2.75%.
  • The maturity of the loan is based on your ability to repay and depends on what the proceeds of the loan will be used for, among other things. Typically, the maturity limit for a loan for working capital won’t go beyond seven years, occasionally to 10 years.

Most businesses are eligible. Those that aren’t include the following:

  • nonprofits;
  • real-estate investments;
  • gambling businesses;
  • pyramid schemes; and
  • companies involved in illegal activities.

What’s more, if your business — or its owners — can handle the financing without an SBA guarantee, you won’t be eligible. In actuality, that’s good news because of the high fees involved.

“If banks are able to do the loan without the program, they will, and that’s better for you,” says Flaherty. Just how high are the fees? For loans of $150,000 or less, the guarantee fee is 2%.

And, of course, just because your business fits all the above specs doesn’t guarantee a loan will be forthcoming.

Banks take into consideration some subjective and concrete factors, including the usual lineup:

  • character
  • collateral
  • management ability
  • owners’ equity contribution
  • ability to repay from your cash flow

When credit was flowing freely, many big banks skimmed over these criteria and relied mostly on a credit check, according to Flaherty. “Now they’ll look at all of them,” she says. “We have yet to see how it will all play out.”

Wharton SBDC clients are advised to do more careful planning than even the banks require. “Please be your own best investor,” Flaherty says.