The Small Business Administration is a great resource for business owners because of their diverse financing options. In this post, we will review each SBA loan option so that you can determine which one is right for your business.
The 7(a) loan can be used for many purposes including working capital, debt payments, marketing, payroll, equipment, commercial real estate, construction, acquiring another business and more. The 7(a) loan is the most popular SBA loan program.
Businesses that have less than 500 employees, generate less than 7 million dollars in annual revenues and less than 5 million dollars in net income are eligible for this product. You need to prove that you were rejected by other financial institutions. It will help proving your funding needs by having no outstanding debt and a low credit score.
To apply, you will need to submit standard business and financial documents. If you are planning to buy a business, equipment, or commercial real estate, you will also need a 10 percent down payment.
The 504/CDC program promotes job growth while raising business revenue. The loan is a combination of efforts from three entities: a lender, the CDC, the borrower, and you. The lender contributes up to 50 percent of the loan, while the CDC covers 40 percent. You will have to contribute the remaining 10 percent.
To qualify for the program, businesses need a net worth below $15 million and less than $5 million in net revenue. If you already have 10 percent of the loan amount you want, you will qualify.
Business-owned buildings must be 51 percent owner-occupied. If you’re planning to build a new structure, it must be 60 percent owner-occupied on opening day. By the tenth year, owner occupancy should climb to 80 percent.
In addition, any equipment you buy must have at least a 10-year lifespan, which rules out computers and software.
The SBA mandates that you must use 504/CDC funds to create jobs or enhance the SBA’s other goals, through efficiency, community initiatives or public policy.
To apply you will need to submit bank statements and prepare a statement on how you will use the loan to create jobs and support the SBA’s public policy goals.
Express loans are offered for most SBA loan products and offer an overall faster process, but this comes at the expense of the loan total and repayment terms.
Businesses who don’t need as much capital will benefit from this program. Also, if a lender is offering the main loan program, they’ll probably offer the Express version, too. Overall, express loans can have less stringent requirements and intended uses.
This program makes use of non-profit lenders to provide up to $50,000 to small businesses that are for-profit and non-profit childcare centers. However, the SBA does not guarantee any amount.
Businesses use microloans for materials and supplies, furniture, marketing, inventory, labor, equipment and more. The SBA states that microloan funds cannot be used for purchasing real estate or paying off debt.
Since the SBA does not back microloans, lenders view borrowers as high-risk clients. Lenders will want to see that you have a good credit score, personal guarantee, and collateral.
To apply with an SBA-approved non-profit intermediary for the microloan program. Getting approved can take several months, even though the amounts are less than traditional loans.
Disaster loans cover losses from declared disasters or losing a key employee. There are three types of disasters loans: Business Physical Disaster Loans (BPDL), Economic Injury Disaster Loans (EIDL), and Military Reservists Economic Injury Loans (MREIDL).
The SBA understands that applying for financing while recovering from a disaster is burdensome. Often, borrowers find that they don’t qualify because they’re not located in the designated disaster area.