SBA Small Business Loan

The Small Business Administration a government office that is supposed to be the “voice” of small business. The office is supposed to represent the interests of small businesses within the federal government. It is responsible for reporting economic research and statistics with regard to business lending, creating and enforcing regulatory legislation, and guaranteeing qualifying loans as an incentive to banks to continue lending to businesses.

The SBA does not directly lend any money to businesses through any of its SBA small business loan programs. When you apply for an SBA small business loan program, you’re basically asking the SBA to guarantee your repayment of the loan according to its terms.

SBA Small Business Loan Programs

There are a number of different SBA sponsored programs. Which programs are offered by any particular bank is at that bank’s discretion. Not all SBA banks offer all SBA programs.

7(a) Loan Program

The SBA 7(a) Loan Program is designed to provide financial help to businesses that meet special, very specific, requirements. Funds can be made available to businesses that export goods to foreign countries or businesses that operate in rural areas, just to name a couple examples.

How you use the proceeds of a 7(a) loan are limited. You are not free to use the money however you’d like. Here’s a list of some approved uses for your 7(a) loan:

  • To start a business
  • To assist in the acquisition of a business
  • For the operation or expansion of an existing business
  • To purchase or for the construction of land or buildings
  • To purchase equipment, machinery, furniture, etc.
  • For short- or long-term working capital purposes

SBA Express Program

The SBA Express program attempts to speed up the traditional application process. Some SBA applications have been known to take weeks to process. A response to an SBA Express application should be received within 36 hours.

SBA Microloan Program

This program makes small, short term loans available to non-profit child care centers. The proceeds of a microloan may be used for working capital, equipment, machinery or inventory. Microloans cannot be used to refinance existing debt or for a real-estate purchase.

Interest rates vary on these microloans. The terms will vary based on the size of the loan and its planned use, among other things. Each lender has its own underwriting and credit requirements, but they generally require some sort of collateral as well as a personally guarantee from its borrowers.

SBA 504 Loan Program

The 504 Loan Program is an SBA small business loan program that offers businesses long-term, fixed rate financing. They can be used for expansion or modernization, or to purchase certain fixed assets. They are structured in a very specific way. The bank covers up to 50% of the project, a CDC (short for Certified Development Companies) covers up to 40%, and the borrower is required to contribute from 10% – 20% of the project cost.

Proceeds of a 504 Loan have to be used for the purchase of fixed assets, although your project may also include certain soft costs. They cannot be used to consolidate debt, for working capital or inventory. They also can’t be used to refinance, unless your project includes certain expansion components. Uses of 504 Loans include the following:

  • To purchase an existing building
  • To purchase land or land improvements
  • To construct new facilities or to renovate or modernize existing facilities
  • To purchase long-term equipment or machinery
  • To refinance debt related to the expansion of your business by adding or renovating facilities or equipment

Eligibility

To be eligible for this SBA small business loan program, you must own a for-profit business with a net-worth of less than $15m and a net income less than $5m in the most recent two years prior to applying. For more information about eligibility, contact a CDC in your area.