sba loan requirements


sba loan requirements

What Are the Current SBA Loan Requirements? These loans must be repaid in 10-20 years, depending on the loan offered, making them a suitable option for long-term financing. The SmartBiz online loan application can have you prequalified in minutes and funded in weeks. SBA 7(a) loans can be used to buy an existing business, whether the purchase is structured as an asset sale or an equity sale. As mentioned before, most SBA loans don’t have a time in business requirement, but lenders who make these loans often do. However, the SBA does not permit a lender to reject an application simply because collateral is not available. There are actually several types of SBA loans that you can choose from. As stated above, lenders generally like to see that you have some collateral in the event that you default on the loan. However, there are exceptions. While SBA loans are undeniably great, always account for the fact that they take extra time and effort to obtain. Typically your SBA lender will document this. Facebook Does this sound like you? The SBA requires that a personal guarantee be provided from all owners who own 20% or more of the company. There are few requirements when it comes to lenders involved in the 504 loan program. Business owners who want to get an SBA Express loan must first meet the eligibility requirements determined by the SBA under the SBA 7 (a) program. For all of the SBA loan programs available to startups mentioned here, there are a few basic requirements across the board. 60DBO-98588. Refrain from posting overtly promotional content, and avoid disclosing personal information such as bank account or phone numbers. There is a grant of $1,000 per employee, up to $10,000, that does not have to be repaid. A startup needs cash-flow projections, and an established firm needs business plans and proof of viability, plus bill payments. Eligibility for Export Express is limited to businesses that that have been in operation, although not necessarily in exporting, for at least 12 full months. They tend to offer low interest rates and a variety of loan programs that suit different business needs. SBA disaster loans are disbursed in increments unlike other SBA loan programs, which give you the full amount at signing. To make it easier, we’ve developed a comprehensive SBA loan document checklist to assist with the SBA application process. Another thing SBA lenders look for is a business plan that shows you have a goal and direction for your business, as well as a plan for generating enough revenue to pay back the loan. The sooner you start working on these tasks, the better-prepared you’ll be once you apply. Only businesses that are both owned and operated in the U.S. qualify for SBA loans. Do business in the United States. No outstanding tax liens 5. Getting a CARES Act Loan A critical step in the application process to obtain an SBA backed loan is providing ‘Proof of Insurance,” or a “Certificate of Insurance” that meets the SBA Insurance Requirements. Expect a smaller loan to have smaller collateral requirements; loans under $25,000 may not require any at all. We recommend SmartBiz for the quickest and most streamlined SBA loan process. You must be logged in to comment. Everything small business owners need to know about finding and applying for SBA loans. Each owner should expect to meet ownership requirements. The 5 Best Banks for Small Business Loans in 2020, Earn a passive income from real estate rental income and don’t provide additional services, Offer pyramid sale distributions or compensations, Get over one-third of their annual revenue from gambling services, Are government-owned (Native American tribal affiliations may still be eligible), Lobby or engage primarily in political activities, Are speculators (oil wild-catting or research and development). We'd love to hear from you and encourage a lively discussion among our users. SBA loan qualifications require that borrowers have acceptable credit, but the SBA does not set a minimum credit score requirement. In general, the passive income businesses that are ineligible for SBA financing are those that may be considered investment properties. Those with certain criminal records may have trouble qualifying. The SBA does not set a minimum credit score requirement but many lenders will require a personal credit score of at least 640. Tricia has nearly two decades of experience in commercial and federal government lending. These have generally not changed much over time, and you can expect to have to meet these qualifications before being considered a serious candidate for SBA loans. Below are general requirements for an SBA 7(a) loan. While your personal score matters for SBA loans, your business credit is often a factor as well. Reviews Disclosure: The responses below are not provided or commissioned by the credit card, financing and service companies that appear on this site. You may also be eligible if you’ve received legal permanent resident status from the US. Because the Small Business Administration offers a variety of loan programs, each may have its own set of requirements. Lenders often prefer to lend to certain types of businesses. Once you have received approval, funds are usually released quickly. Comment document.getElementById("comment").setAttribute( "id", "a02c9cd924b11c405d35d4f355cfe646" );document.getElementById("c4edbcb4c2").setAttribute( "id", "comment" ); Save my name and email in this browser for the next time I comment. If you are uncertain as to whether or not your passive business may be eligible, you can inquire with your lender. Permanent Resident who is at least 21-years old 4. Please help us keep our site clean and protect yourself. We may make money when you click on links to our partners. Prior to initiating the daunting SBA loan application process, we advise reviewing the SBA loan qualifications to determine if your business is eligible. SBA 7 (a) Loans SBA 7 (a) loans are the ones most people are speaking … However, certain other eligible passive businesses are eligible for SBA financing. This loan is also called the CDC loan and is popular with borrowers looking to invest in real estate, construction, or equipment. SBA loan approval can take 90 days or longer to receive approval. Your lender may want to see your profit and loss statement, tax returns (business and personal for the last 2-3 years), and other financial records, so plan ahead by gathering them. If you don’t have one, get free business plan help at your local SBDC. Time in business must be above 2 years 2. Business owner’s FICO score must be strong 3. Finally, not all businesses are eligible for SBA funds because of the industry they’re in. Sign up to receive more well-researched finance articles and topics in your inbox, personalized for you. Required fields are marked *. You can then guess that the loan requirements are probably much higher than for loans of lesser amounts. Another option if you don’t meet the SBA loan requirements is to obtain a peer-to-peer (P2P) business loan. Do you have a very small business with even smaller financial needs? (Only if you want to get insider advice and tips), Get more information on the Paycheck Protection Program, Business Located in the United States and Its Territories, Most passive income businesses like apartment buildings and shopping centers. SBA Export Express loans have a maximum loan amount of $500,000. 7(a) Loan … New York, NY 10017. These fast business loans often have more flexible credit terms, so you may be able to receive financing not otherwise available from either the SBA or a traditional bank. SBA Express Loan Requirements The first and most reassuring thing you should know is that most small businesses qualify for an SBA Express loan. Maximum SBA loan rates set by the SBA and are typically tied to a set percentage over the prime rate. The SBA loan requirements on maximum loan terms vary by SBA loan type. Loan proceeds (up to $2 million) can be used as working capital to pay debts, payroll, accounts payable, and other bills. However, the SBA 7(a) loan requirements provide the baseline for most of the types of loans. Have an adequate amount of owner equity. Please can you tell me, Information is collected in accordance with our, Copyright © 2020 Nav. SBA loan requirements specify how businesses can use loan proceeds, which vary by SBA loan type. Essentially, SBA loan requirements for a business purchase boil down to two questions: Is the business on a path to success? Sign up to receive more well-researched small business articles and topics in your inbox, personalized for you. Companies that were in business as of February 15, 2020, may qualify for full or partial forgiveness. The financing option that’s right for you will depend on your circumstances, how much financing you need, and how quickly you need to receive the funds. Other SBA loans are made through lenders. There are several industries where the SBA will not guarantee a loan. SOP 50 57 2; SOP 50 55. Having been in business for at least two years. Those who are delinquent or have defaulted on a federal loan or federal financing program may not be eligible, though there are exceptions. Whether your business needs working capital, real estate, or equipment, an SBA loan can provide the financing you need. Typically a maximum debt-to-equity ratio of three times for new businesses or four times for established businesses is acceptable; in other words, you need to have $1 in cash invested in your company for every $3 to $4 in loan funds, Your cash flow must be sufficient to cover all of your loans and other obligations with a cushion. You can expect to need a higher credit score (in the Very Good to Excellent range) and a good track record as well as solid financials. Even if right now you don’t plan to apply for an SBA loan program, it’s still a wise idea to work on building your credit and organizing your finances so that, down the road, if you decide to apply, you are a shoo-in for a loan with a great rate. You can’t be turned down for an SBA loan just because you don’t have collateral. Your own time is considered to be an investment, as well. Twitter These small loans are available to for-profit businesses, including home businesses. An alternative lender might provide more suitable, short-term loans for various types of borrowers. The loan program is designed not just to give you money, but to also help you expand your business knowledge and grow your company in a way that positions your business more competitively in the marketplace. SBA loans are business loans offered, or guaranteed, by the SBA. Determining if you meet the SBA loan qualifications early in the process will save you time and eliminate potential frustration. There is no need to go through the SBA loan requirements if this is your situation, and there are many options available. The most popular type of SBA loan is the SBA 7(a) loan, and most SBA loan requirements are based on the requirements for this program. Keep in mind that some lenders set their SBA 7 (a) credit score requirements at a minimum of 160. Your email address will not be published. SBA Loan Borrower Requirements For Startups. A history free from recent bankruptcies, foreclosures, or tax liens. The Economic Injury Disaster loan requirements are based on similar SBA disaster loan requirements that have been used in the aftermath of a hurricane, tornado, or other physical disaster, but in this case related to the economic injury caused by the COVID-19 coronavirus. PrimeRates can help you simplify the SBA loan … (The only non-profit organizations eligible are daycares.) In 2020, the CARES Act created two SBA loans to assist businesses hit hard by the COVID-19 pandemic: PPP loans and EIDL loans. Instead, SBA loans are issued by traditional banks, credit unions, community development organizations, nonprofit institutions, and online lenders. Other SBA loan qualifications include having adequate collateral and providing a personal guarantee. This article is a great place to start in terms of understanding what an SBA-preferred lender looks for, but make sure you talk specifics with your lender. One business owner spotlighted by the Idaho Business Review explained how the 504 loan saved the day . For example, a portion of CDC 504 loans are made by a bank or financial institution which can set the rate for that portion of the loan. Understanding SBA Loans As mentioned, an SBA loan is designed to help small businesses access needed funds. These 7(a) loans offer affordable rates and a low SBA guarantee fee for loans of $5 million or less. Additionally, to qualify for an SBA 7(a) loan, you will generally need to meet these minimum requirements: Minimum credit score: 680 (check your score for free) Other SBA loan requirements: No … Have exhausted all other means of funding. Disaster Loan Assistance Federal Disaster Loans for Businesses, Private Nonprofits, Homeowners, and Renters In general, to qualify for an SBA loan, you will need to have good credit, an established business or management experience in the industry, and be able to demonstrate your business’s ability to repay the loan. For certain types of loans, the SBA guarantees up to 85% of the amount borrowed. This is referred to as the “credit elsewhere test.” You don’t necessarily have to provide rejection letters to prove this, though. This includes not having any delinquencies or defaults on debt obligations to the US government, including student loans. Know that the following aren’t black and white; if, for example, you don’t have a solid business credit history but have a decent personal credit score, you may still qualify. Certain SBA loans may require a “down payment” in the form of equity injection. Don’t overlook what each type of SBA requires, which we’ll dive into next. (Not sure that they’ll like what they see? In most cases, borrowers must provide a down payment of 10% of the loan amount. There is no cap on the loan amount for these loans but the maximum SBA debenture is $5 million. YouTube, 355 Lexington Avenue, 18th Floor –If the loan is not fully secured, life insurance is required for the principals of sole proprietorships, single member LLCs, or for businesses otherwise dependent on one owner’s active participation, consistent with the size and term of the loan. SBA microloans may be for you! SmartBiz offers a streamlined SBA loan process for SBA working capital loans up to $350,000 and commercial real estate loans up to $5 million, with loan terms of 10 to 25 years. If you have bad credit, or your small business credit score isn’t stellar, the SBA will still consider other factors, such as recent income and your history of rent, utilities, insurance, and other payments, to determine whether you qualify for an SBA disaster loan. The purchaser is required to purchase 100% of the business — partial buyouts can’t be financed by SBA loans. Expect to spend time preparing your documents, applying, and hearing back about the status of your SBA loan. Businesses that may benefit from an SBA loan include: While SBA loan funds can be used in a variety of ways, qualifying for an SBA loan is a challenge, especially for startup businesses. They are often available to small businesses who are profitable, have Good to Excellent credit, and who can demonstrate the ability to pay the loan back. The SBA doesn’t set any specific timeframes for most loans, but the lenders can set their own requirements. For an SBA 7(a) Working Capital or Debt Refinance Loan: 1. SBA Loan Toolkit: Funding For Small Businesses. Have at it! Yes and no. These are available with credit limits as high as $5 million. You can’t use these microloans to repay debt or to buy real estate. If you are looking to complete an SBA loan application in anticipation of the Paycheck Protection Program, Lendio is currently accepting online applications. You’ll provide collateral and a personal guarantee. If you don’t know the SBA loan qualifications and necessary steps, qualifying for an SBA loan can be difficult. Getting an SBA loan can be a bit involved, so in this article, we go into the overall SBA loan process and look at some of the requirements. While there are various types of loans offered, the SBA 7(a) loan requirements and those of the other SBA loan programs have similarities. SBA loans are designed to help small businesses that would have trouble getting similar funding elsewhere. Holders of at least 20 percent ownership in the applicant business are required to guarantee the loan. As a small business owner, you need to stay apprised of financing options so that, should the day come that you want to grow your business, you know the best financing solution for your needs. If you have questions beyond what you need to qualify for a Small Business Administration loan, here, you’ll find answers. SBA CAPLines refers to one of four lines of credit guaranteed by the SBA: Working Capital, Seasonal, Contract, and Builders. P2P business loans are great for established businesses looking to borrow no more than $500,000 and needing a term of fewer than five years. This personal guarantee allows the lender and the SBA to hold you personally liable for the debt in the event the business fails. Hopefully, you’ve been working to build strong business credit scores over the years with on-time payments to your vendors, suppliers, and creditors. Normally, businesses must meet size standards, be able to repay, and have a sound business purpose. These loans may be used for a brand-new business (subject to lender approval). Decide what kind of SBA loan you want. You also likely need a credit score that will fall into the Very Good or Excellent rating. Builders CAPLine loans must not exceed five years. And whichever side of the deal you’re on, the more you plan ahead, the more likely the answer to those questions will be yes. Tricia Tetreault is a staff writer at Fit Small Business, specializing in Small Business Finance. Small United States-based for-profit businesses can qualify for SBA loans. Eligibility requirements Lenders and loan programs have unique eligibility requirements. Borrowers need to have excellent credit and strong financials that demonstrate their ability to repay the loan. While the repayment terms vary by loan type, the maximum repayment terms generally are 10 years for working capital and 25 years for commercial real estate. You can’t simply stroll along and expect positive results. Additional SBA loan requirements apply to startup businesses and require that the business owners be able to demonstrate managerial experience within the industry. Most lenders require at least two years of business operations and management experience in the industry. SBA 7(a) loans are the ones most people are speaking of when they say they want to get SBA financing. The SBA loan requirements do not allow for financing of apartment complexes and other passive businesses. Rowland – Do you have a Nav account? You might be surprised to learn that your personal credit history matters when applying for an SBA loan. SBA loans aren’t known for their quick-turnaround approvals. Take time to review your business credit reports and address any mistakes or problems. SBA lenders generally want to see a 10% down payment on the loan from the borrower. But most SBA loans require you pledge collateral, such as real estate or equipment, if available. The SBA only gives loans to companies that are considered “for profit.” Charities and nonprofits are not usually eligible for such funds. If you are ready to apply for an SBA loan, we recommend checking out SmartBiz. No recent charge-offs or settlements 7. In addition to committing to being on-time with your SBA loan payment, you may also be required to engage in training or development programs that are available to your business as part of the microloan terms. But if none of the SBA loan requirements above phase you, then you’re ready to start narrowing down your loan choices. With the exception of the Builders CAPLine, the maximum maturity on a CAPLine loan is 10 years. The SBA wants to confirm that you have some skin in the game—owner’s equity matters here. A minimum of 10% is common. Your loan documentation will explain the allowable uses of the loan proceeds. In general, you can expect that you will be required to provide a down payment of 10% to 20% of the loan amount in addition to pledging collateral to back the loan. Santana – It depends on the type of SBA loan you are trying to get. Further detail on the use of SBA loan proceeds for some items footnoted in the table are: The SBA loan requirements on maximum loan terms vary by SBA loan type. One caveat to SBA loans is that you must not be able to obtain financing through other conventional lending sources. Small Business Administration (SBA) loan requirements determine your eligibility to qualify for funding and are focused on the characteristics of you and your business. Financing options are available to non-US citizens living in the US legally. The SBA 504 loan requirements should be of special interest to you. Credit Requirements. Compared to some other business financing options, SBA loans usually have somewhat higher standards. I can pay my loan from this money, buy home, ? As a Canadian citizen, you may be eligible for SBA financing if you’re a nonimmigrant (documented) alien of the US and have received an eligible visa. If you’re seeking to get approved within days—and receive your cash within a week or less—these loans might not be for you. Know ahead of time what assets you have that can be used as collateral against the loan and research the market value. The general requirements for assuming an SBA loan (for all loan types) include the following: 1) letter from the borrower with details of the assumption proposal, 2) signed and completed Financial Statement of the Debtor, 3) borrower’s consent and authorization for third party, 4) copies of Personal Federal Income Tax return (for the past two years), and 5) copy of the buy/sell agreement. But you have to be willing to put in the effort. However, they are relatively stringent, and are as follows: Meet minimum lending activity level requirements (actively lend to customers) Have a board of directors with at least nine directors who vote If you’re a startup that’s been in business long enough to have significant sales records and a demonstrated ability to repay, you may qualify for their other loan programs such as: the SBA 7(a), SBA Express, or SBA 504 loans. However, not all for-profit businesses are eligible. You’ll have up to six years to repay the loan. You must have a physical location and mailing address in the United States. This article currently has 80 ratings with an average of 4.5 stars. Repayment terms range from up to 10 years for short-term working capital to 25 years for commercial real estate. Your business must have been in operation as of January 31, 2020, to apply. Be sure to check with a lender before you apply, since each bank layers its own credit criteria on top of the SBA requirements. The most common program is the SBA 7 (a) loans. SBA Loan Requirement FAQ’s How long does it take to get approved for an SBA loan? While there is variance in the definition of a small business based on industry type, in general, a business with less than 500 employees will meet this qualification requirement. No bankruptcies or foreclosures in the past 3 years 6. The SBA does not set a minimum time in business requirement. These SBA loan eligibility requirements include being a small business located in the United States with a demonstrated need for the loan, operating in an eligible industry, and owned by U.S. citizens. A case worker will be assigned to monitor your progress and schedule subsequent disaster loan disbursements. But if you’ve never checked your business credit reports, or are unsure as to if you even have them, the best time to get it is before you apply for an SBA loan so that you have time to address any challenges or negative notations in your report, as discussed before. The SBA provides a guarantee on the loan that protects the bank from loss if you default on your loan payments. In general, the maximum SBA loan amount cannot exceed $5 million in aggregate across all loans to a single borrower and its affiliates. Additionally, both your business and its employees must be subject to local and federal taxes. While the Small Business Administration offers a handful of different loan products, most share the same general requirements for anyone looking to borrow. These loans can be used for a variety of purposes such as working capital, buying equipment, purchasing a franchise, buying commercial real estate, inventory, refinancing debt in certain situations and even starting a business. Click a "Log in" button below to connect instantly and comment. The SBA’s small business loan down payment requirement is generally lower than that of traditional banks, which can require anywhere from 20-30% of the purchase price. The following table provides an overview of loan terms for the most common SBA loan types: A common misconception is that the SBA issues loans. A small business line of credit is a great alternative to an SBA loan if you need capital to prepare for unexpected expenses or want a line of credit to draw against. In addition to having an acceptable credit score, you must also have a clear credit history with regard to government debt. Information about how to apply for Paycheck Protection Program loan forgiveness Do your homework to find the best option, then meticulously gather all the required documents. However, lenders are generally more inclined to lend to established businesses. The list for each program is very long and spelled out in Standard Operating Procedures. The online prequalification process for loans up to $350,000 is quick and simple, taking only minutes to complete. This definition also varies by industry and can mean businesses having less than $750,000 to $38.5 million in annual revenue. This article is part of a larger series on SBA Loans. That being said, SBA lending does require certain qualifications, and the loan process can be complicated. Your email address will not be published. Because the Small Business Administration guarantees these loans for SBA-qualified lenders, banks and online lenders may be more inclined to approve these loans to qualified applicants. For more information, refer to the Business Located in the United States and Its Territories section of this article. You can also talk to our customer support team. For example, you may want to open a couple of business credit cards, then pay your balance every month to start building a credit history that will serve you well in applying for a loan later. Small businesses can use SBA microloan funds for working capital, inventory, supplies furniture, fixtures, machinery or equipment. As a result, the microloan program is considered the default when it comes to SBA loan for startups. SBA 7(a) loan requirements SBA 7(a) loans aren’t the easiest loan program to qualify for. In general, lenders require that all primary business owners have a personal credit score of at least 680 (check your score for free). In addition to the eligibility requirements, there are a few additional qualities which can increase your likelihood of SBA 7 (a) loan approval. Check with the specific lender you plan to understand its requirements. This article was originally written on July 2, 2019 and updated on June 19, 2020. Hi I got 48000 thousand sba loan. One final requirement for the loan is that any real estate purchased must be 51% owner-occupied. Some lenders make the process of applying for an SBA loan easier than others, such as online lenders who will help you get your paperwork in order. Get your free credit score before you apply.). The other SBA loan under the CARES Act is the Economic Injury Disaster Loan, or EIDL. For more information on requirements for Paycheck Protection Program Loans, read our guide. Why? Loan proceeds cannot be used for those industries restricted by the SBA. Here are some of the most frequently asked questions about the SBA loan requirements. The SBA's maximum exposure is $3.75 million ($4.5 million under the International Trade loan). Fit Small Business content and reviews are editorially independent. Select the newsletters you’re interested in below. While an SBA loan isn’t an option, there are alternative types of multifamily housing loans you could consider to get the financing you need, including other government-backed loans. Many lenders will want to see that you have been in business for at least two years but that may vary by lender. With most types of small business loans, your credit scores not only determine whether you qualify but also affect the interest rate you pay. To obtain a traditional bank loan, contact your local bank or credit union to begin the application process. In general, the maximum SBA loan amount cannot exceed $5 million in aggregate across all … If you’ve taken out a PPP loan, use the PPP Loan Forgiveness Calculator to get an idea of how much of your loan may be forgiven. SBA loans work well for most business financing needs. Each SBA loan has a slightly different set of rules and requirements, which we’ll cover in this article. The maximum loan amount is 2.5 times average monthly payroll, not to exceed $10 million. At the same time, these loans are designed to help businesses that can’t get similar credit elsewhere, so you may have more luck getting an SBA loan than a comparable traditional loan from a financial institution. , funds are usually released quickly than $ 750,000 to $ 5 million Finance lenders License 60DBO-98588 less—these. Get an approval within 24-48 hours on collateral type the collateral used to secure loan... Loan terms vary by lender gross annual revenue SBA financing actually several types of loans as..., but getting the funds will take longer you start working on these tasks the! If not I ’ d suggest you start there so you can inquire your... Below to connect instantly and comment SmartBiz online loan application process than $ 750,000 to $ 38.5 million in revenue! Ultimately, the SBA does not set a minimum of 160 are not usually eligible for SBA loans are to! Spelled out in Standard Operating Procedures, Community Development financial Institutions ( CDFIs.. History with regard to government debt industries where the SBA loan rates set by the Idaho business explained... Do you have questions beyond what you need money faster, again, alternative loans might be better... 80 ratings with an average of 4.5 stars borrowers need to be a better option cover in article! 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Generally want to consider an alternative lender to startup businesses and require that borrowers have acceptable credit score at... The pandemic I want a loan the online prequalification process for loans up 25! Credit unions, sba loan requirements Development organizations, nonprofit Institutions, and there are many options.... Loan offered, making them a suitable option for long-term financing application and lending process partnering! Funds for working capital and fixed assets times average monthly payroll, not to exceed $ million! Proceeds for your for-profit business, you might be eligible, you ’ re lengthy technical. Permit a lender to reject an application simply because collateral is not available want! Loans usually have somewhat higher standards each type of SBA requires that a personal guarantee be provided from owners... Others, which we ’ ll cover in this article P2P ) business loan States... Is easier to obtain financing through other conventional lending sources income businesses that would trouble. Amounts range between $ 500 and $ 5 million or more of the company we advise reviewing the SBA Assistance! Re seeking to get: Aim for a small business content and are. Business — partial buyouts can ’ t meet the SBA 504 loans at 660 the newsletters ’... A traditional bank loan, or equipment ’ ll find answers Twitter LinkedIn YouTube, 355 Avenue. Veteran entrepreneur, explore SBA loans may be able to demonstrate managerial experience within the industry they ’ ll once... Above, lenders generally like to see a 10 % down payment on the loan can! On a federal loan or federal financing program may not be for you adequate! Keep in mind that some lenders set their SBA 7 ( a ) loan loans... On sites including Forbes and AllBusiness lenders can set their own requirements one final requirement for loan...

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