Indispensable Information Regarding SBA Financing
If you’re a small business owner, it’s worth looking into SBA financing. The Small Business Administration, while not a lending institution per se, instead looks to banks and other lending institutions for funds, and then guarantees them. The SBA offers a variety of programs to provide loans to small businesses. Let’s take a look at some of different types of loans available.
A Basic 7(a) Loan Guaranty helps small businesses, which might not otherwise qualify for loans through traditional lending channels, by guaranteeing the loan through the government. It can be used for a variety of business purposes, making it one of the more flexible types of SBA financing. Most small businesses will be approved for a Basic 7(a) Loan Guaranty if they are doing business in the U.S. or its possessions, have some of their own equity to invest, look to personal assets or alternative funding first, and are looking to turn a profit with their enterprise. In addition, there are many variations on this loan to accommodate specific needs.
Certified Development Company (CDC) – 504 SBA loans are geared toward companies that are looking to modernize their equipment or expand their business by buying new real estate. These loans are aimed at businesses that maintain physical stores or plants. 504 loans typically require 10% from the borrower in equity, with 50 percent of the loan coming from a traditional lender and the other 40% coming from a CDC, or certified development company, which is a non-profit dedicated to the economic growth of a particular region or community. This CDC will then hold a second lien on the real estate or equipment that is acquired. To be approved for this type of SBA financing, the business must be a for-profit company with an average net income, after taxes, of not more than $2.5 million for the past two years. In addition, the business can’t have more than $7.5 million in net worth.
7(m) SBA Micro Loans offer a way to secure a loan of up $35,000. Available for non-profit childcare centers as well as small businesses, these loans allow for the purchase of equipment, supplies, fixtures, inventory, and more. The loan is actually made by the SBA to a local, non-profit lender, who in turn provides the loan to the small business. 7(m) SBA Micro Loans cannot be used to acquire real estate or pay off existing debt.
The SBA also offers a way for you to pre-qualify for your loan before you go to a lender. They will analyze both your application and business plan to help make sure that you are seriously considered.
While there is a lot of information to sort through, the process for securing a loan through the SBA is pretty straightforward. The information outlined above should help you to navigate the many options available from the SBA and aid your business in obtaining the funding it needs.
