The Small Business Administration (“SBA”) recently approved its first loan under its new Manufacturers’ Access to Revolving Credit (“MARC”) loan program. The initiative establishes a new type of credit for certain manufacturers. Below is a high-level overview regarding MARC loans.
1. Eligibility
In addition to other general eligibility requirements for any SBA loan program, MARC loans require the borrower to be engaged in manufacturing. Eligible manufacturers are identifiable by the business’s primary 6-digit NAICS code, the first two digits of which will be 31, 32, or 33. Examples of eligible manufacturers include: (i) beverage and tobacco product manufacturing (NAICS 312); (ii) plastics and rubber products manufacturing (NAICS 326); and (iii) machinery manufacturing (NAICS 333).
2. Use of Proceeds
MARC loans can be used only for working capital needs of the business. For example, in a change of ownership transaction, MARC loan proceeds may be used to support the working capital needs of the business related to the transaction but cannot be used to finance the change of ownership. Similarly, MARC loan proceeds cannot be used to refinance debt or pay delinquent taxes.
3. Amount of the Loan
MARC loans are available to an eligible business for up to $5 million. The SBA will guarantee 85% for loans up to $150,000 and will guarantee 75% for loans exceeding $150,000. Lenders will confirm whether the business applicant has any affiliate entity that has applied for any other SBA loan. The loan maximum above applies to both the business applicant and all of its affiliates as if the business applicant were a single business.
4. Structure and Maturity of the Loan
A MARC loan may either be structured as a term loan or a revolving loan. Term loans have a maximum maturity of 10 years. Revolving loans have a maximum maturity of 20 years. However, a borrower may re-borrow funds as need arises during the first 10 years of a revolving loan and, thereafter, the loan must convert to a fully amortizing loan with a repayment term not exceeding 10 years. Interest rates for loans $50,000 or less are Prime + 6.5%. Interest rates for loans more than $50,000 and up to $250,000 are Prime + 6%. Interest rates for loans more than $250,000 and up to $350,000 are Prime +4.5%. Interest rates for loans exceeding $350,000 are Prime +3%.
5. Collateral
Like a Standard 7(a) loan, MARC loans require lenders to place a lien on all business assets. However, lenders of a MARC loan are not required to place a lien on (i) a vehicle that is already subject to a different lien or whose value is less than $20,000, or (ii) the trading assets of the business (such as accounts receivable or inventory) when those trading assets are pledged as collateral for a separate revolving line of credit and the business applicant is applying for a term loan.
Unlike a Standard 7(a) loan, a MARC loan does not require a minimum equity injection based on the use of proceeds. Instead, the lender or SBA evaluates whether the business applicant’s equity position and debt obligations are acceptable in light of the type of business and management experience related to the business applicant.
The MARC loan program is part of a larger effort by the SBA to provide flexibility and minimize red tape for applicable businesses. Manufacturers now have another tool to support growth and ongoing business needs.
