Finding the right SBA loan for your business
Whether you’re thinking of starting a business or already running one, money is your lifeline. Small businesses have funding as a major factor in sustaining their business and sometimes getting funding for the same turns out to be most beneficial for them. The Small Business Administration, SBA, helps put it together for small businesses. It offers them the financing they need to run the business and even grow it.
This is a federal government agency that is used for many small businesses. Instead of lending the money directly to businesses, it sets and uses loan guidelines through partners such as credit unions, microlending institutions, banks and community development organizations. The SBA eliminates the risks for the lender by guaranteeing the repayment of the portions of the loans made. It can be called a win-win situation as the businessmen get the financing they need and the lenders are assured that the loans will be repaid, making the agency very useful. Loans simply offer access to capital at the lowest cost without having to give up equity.
It is important to note that SBA loan programs are specifically structured for small businesses that do not have access to other types of financing. As a small business, you should be familiar with the loan programs so that you can apply for the right one for your business.
7 (a) loan program – This is the main program designed to assist start-ups as well as existing small businesses that need financing. Loans are principal and the money can be for general business purposes such as equipment, machinery, working capital lease improvements, equipment and furniture and other business needs. Basically, you can take care of business acquisitions, consolidation of unsecured debts into a new loan, purchase of 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 typically cover 40% of the total project cost, the participating lender covers 50% and the borrower contributes the final 10%. Loans under this program are never used for inventory or capital.
Disaster Loans – Businesses can be affected by disasters and this can be disastrous for any business. The SBA extends disaster loans to businesses that are affected by declared disasters. Low interest loans are structured to help replace or repair damaged machinery, personal property, business assets, inventory and equipment. Generally, you will be able to get back on your feet after the disaster at very low interest rates using this loan program.
Microloan Program – The loan program makes very small loans to start-ups, growing businesses or start-ups. They usually have designated SBA intermediary lenders, most of whom are nonprofits with some experience in technical and credit assistance. Although small loans cannot be used to pay off existing debts or real estate purchases, they are still useful for purchasing equipment, fixtures, machinery, supplies, and inventory, or are used as working capital.
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