Small businesses are essential in the U.S economy because they create jobs and add new and innovative products and services to the market.
The Small Business Administration exists to support both emerging and growing small businesses by offering services, tools, and resources at affordable rates. The SBA offers several loan programs to help those businesses meet demand, acquire needed assets and personnel, and preserve working capital in an undulating market. Those programs supplement traditional commercial loans, giving small businesses more options when it comes time to seek outside financial help.
Today we will discuss the programs of the SBA so you can see if any work for you and your business.
7(a) loan program
This 7(a) loan program is better for small businesses and startups that are seeking a larger loan. Loans in this class range from $350,000-$5 million. For this loan you will need to show a need and purpose for the amount of the money you would receive.
In order to be eligible for this program you must be a profitable business with over a million dollars in revenue, located in the US that is not delinquent on any other government debt. Also, the SBA can’t be the first place you go for funding—they require that you’ve used your own assets to the extent that you can.
Microloans are part of the SBA Small Business Loan Advantage program. This program is designed to encourage SBA lenders to make smaller business loans (up to $350,000) and offers a lower interest rate (6-8 percent annually). Your business needs to have good credit in order to qualify for the program.
Under the microloan program, the SBA provides small, short-term loans to small businesses, and specifically childcare-related nonprofits. These loans are provided from the SBA to intermediary lenders, and eligibility requirements are determined through that third party lender.
Loan amounts are typically around the $13,000 range but it can be higher, sometimes as much as $350,000, depending on the microloan provider’s parameters. The max repayment period is six years.
The SBA sets very specific guidelines for how the microloans can be used. The loans cannot be used for buying real estate or for paying off existing debt. The loans can be used to purchase inventory, furniture, and equipment as well as to use as working capital.
CDC/504 Loan Program
The CDC/504 program is the vehicle through which the SBA spurs much of its economic development and public policy goals. CDC stands for Certified Development Company, which are nonprofit organizations that assist people in getting this type of loan. This program provides long-term, fixed-rate loans for the acquisition of major assets such as commercial real estate, equipment, improvements to real estate and modernization for facilities for energy efficiency.
Typically, this type of loan is secured from a participating bank that will cover up to 50 percent of the loan cost for the purpose of the loan, also knotting that these loans are commonly used for construction businesses.
This loan is low-risk for banks and the business needs to put a 20 percent down payment and use the assets purchased from the loans as collateral. The remaining 40 percent of the loan is put up by the CDC.
That max loan amount allowed depends on the purpose of the loan and which public policy goal it is satisfying.
People never hope for a disaster to occur, but it can happen, and they are not always in our control or favor. The time may come that you will need a loan to rebuild your business after a disaster occurs.
The SBA offers such a program that in the instance of an officially declared disaster, such as a hurricane, the SBA will help you replace your equipment, real estate, and other assets for your business. Borrowers can get a loan of up to $1 million which is processed through FEMA under low interest rates.
The Bottom Line
While the SBA application process is accessible and straightforward, the wait period is pretty lengthy, it can go up to 14 weeks. If this does not work for you, then you should look into other options. All programs use third party intermediaries to facilitate funds, except for the Disaster Loan Program. Also, be sure to do your research thoroughly because there are certain types of businesses that are ineligible for financial help from the SBA.