Qualifying for the SBA Loan Program for Pollution Control Businesses

For an environmental business to qualify for the SBA loan program for pollution control businesses, it must meet normal 7(a) loan program guidelines with the one exception of using the proceeds expressly for fixed-assets whose purpose is pollution control. This can include the planning, design, purchase, or installation of any facility, land, vehicle or equipment which prevents, reduces, abates or controls any form of pollution, including recycling. The attached proviso can slightly alter certain facets of the popular 7(a) SBA loan including maturity rates and their requisite fees.

How Is This Loan Program Different?

The SBA loan program for pollution control businesses only differs in one respect when compared with the normal 7(a) loan program. Its particular loan qualification requirements stipulate that the small environmental business in question will use the proceeds for fixed assets only. In this case, fixed assets would be any land, facility, equipment or vehicle whose express purpose is pollution control. As a result of this stipulation, the conditions surrounding the maturity rates of the 7(a) loan program are slightly altered.

Normally, the maximum for these maturities is 25 years for real estate and equipment. However, the maximum maturity of loans used to finance fixed assets is limited to the useful or economic life of those assets, just so long as they do not exceed 25 years. So, for instance, if the estimated economic life of a vehicle is merely 10 years, then the loan maturity will be 10 years as well. This effectively creates higher monthly repayment premiums resulting from the shorter term.

One positive feature of this proviso affects those SBA loans designated for construction or significant renovation. Wherever small business premises are to be constructed or renovated, the 25 year maximum is in addition to the time needed to complete the given project. In these cases, the 25 year maximum may remain negotiable and can lead to significantly lower monthly payments. However, environmental businesses must consider the consequences of using the 7(a) SBA loan program for a combination of purposes.  

When the SBA loan is used for such combined purposes, each of these purposes is assigned its own maturity rate. In such cases, the combined maximum maturity can be a weighted average of each maturity, resulting in level payments. However, it can also be the sum of equal monthly installments on the allowable maturities for each purpose. This results in unequal payments with a higher requirement for repayment during the initial term of the loan.

Are There Other Qualifying Differences?

The quick answer is no. Because normal 7(a) SBA loan program qualifications apply, with the exception of stipulating the particular for-asset-only use of the proceeds, environmental businesses need only concern themselves with the standard requirements. These are that the business be for-profit, can demonstrate repayment, meet SBA size standards and must not have any internal resources available for financing the proposed project.