Finding the Right SBA Loan for Your Business
Whether you’re thinking of starting a business or already running it, money is your lifeline. Small businesses have financing as an important factor in keeping their businesses afloat, and at some point raising funds for it turns out to be in their best interest. Small Business Administration, SBA, helps rebuild things for small businesses. It offers them the financing they need to run businesses and even grow them.
It is a federal government agency that has worked for many small businesses. Rather than lending money directly to businesses, establish and use guidelines for lending through partners such as credit unions, microcredit institutions, banks, and community development organizations. The SBA eliminates risk for lenders by guaranteeing repayment of portions of loans made. It can be termed as a win-win situation because the entrepreneurs get the financing they need and the lenders make sure that the loans will be repaid, which makes the agency very beneficial. The loans simply offer access to capital at the lowest costs without the requirement of giving up equity.
It is important to note that SBA loan programs are structured specifically for small businesses that do not have access to other types of financing. As a small business person, you should be familiar with loan programs in order to apply for the right one for your business.
7 (a) Loan Program – This is the primary program intended to assist startups as well as existing small businesses in need of financing. The loans are basic and the money can be for general business purposes such as equipment, machinery, working capital lease improvements, fixtures and fittings, and other business needs. Basically, you can take care of business acquisitions, consolidating unsecured debt into a new loan, buying a large inventory, and business expansion.
CDC / 504 Loan Program – This SBA loan program offers long-term financing for the purchase of large assets. Assets can include commercial real estate, buildings and land, or even equipment. Loans generally cover 40% of the total project cost, the participating lender covers 50%, and the borrower contributes the last 10%. Loans under this program are never used for inventory or equity.
Disaster Loans – Businesses can be affected by disasters and this can be devastating for any business. The SBA extends disaster loans to businesses affected by declared disasters. Low-interest loans are structured to help replace or repair damaged machinery, personal property, business assets, inventory, and equipment. Basically, you will be able to recover after a disaster with very low interest rates by using this loan program.
Microloan Program – The loan program makes very small loans to startups, growing businesses, or newly established businesses. Typically, the SBA has designated intermediary lenders, most of whom are nonprofits with some experience in credit and technical assistance. Although small loans cannot be used to pay off existing debts or real estate purchases, they are still useful for purchasing accessories, equipment, machinery, supplies, and inventory or for use as working capital.