The Small Business Administration offers several different loan programs to small business owners. However, they act primarily as a guarantor of loans made by private and other institutions rather than the actual lender.
Basic 7(a) loans are the primary program and by far the most-used type of loan among all SBA loan programs. The name 7(a) comes from section 7(a) of the Small Business Act, which authorizes the SBA to provide loans.
Basically 7(a) loans are provided by lenders who participate with the SBA in the 7(a) program. With these loans the SBA acts only as a guarantor. Lenders structure their own loans according to SBA requirements and receive a guaranty from the SBA on a portion of the loan, not the full amount. Both the lender and the SBA therefore share in the risk of delinquent repayment. Small businesses must apply with a lender, not the SBA, for their financing. It is then up to the lender to decide if it will make the loan internal and accept the full risk, require an SBA guaranty, or reject the loan application altogether. The SBA cannot force the lender to choose one option over another. If the lender does call for an SBA guaranty, the small business must be both creditworthy and eligible to receive funding.
Eligibility Criteria:
The SBA also takes into consideration character, management capability, collateral and owner?s equity contribution.
For more information on 7(a) loans, go to http://www.sba.gov/services/financialassistance/sbaloantopics/7a/index.html.
Another SBA loan program is called Certified Development Company, a 504 Loan Program (CDC/504). This program provides a long-term, fixed-rate loan to small businesses acquiring real estate, machinery or equipment for expansion or modernization.
The CDC/504 is broken down and typically includes the following:
To be eligible for this program, businesses must be for-profit and fall under SBA size standards, which for the CDC/504 program means it can't have a tangible net worth in excess of $7.5 million or an average net income in excess of $2.5 million after taxes for the preceding two years.
For more information on CDC/504 loans, go to > http://www.sba.gov/services/financialassistance/sbaloantopics/cdc504/index.html.
Small businesses can also look to get funding from Microloan, a 7(m) Loan Program. This program provides short-term loans to small businesses and non-profit child care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and/or equipment. The maximum loan amount is $35,000. The maximum loan term is six years.
With microloans the SBA either makes or guarantees a loan to intermediaries, which are non-profit, community-based lenders. These intermediaries, in turn, make the microloans to eligible borrowers. Intermediaries also provide management and technical assistance. Applications for microloans are obtained from and submitted to the local intermediary, who also makes all credit decisions.
For more information on Microloans, go to http://www.sba.gov/services/financialassistance/sbaloantopics/microloans/index.html .
The SBA also offers various special purpose loans. These loans are meant to help small businesses achieve several different purposes, like meet international demand, implement employee ownership plans, implement pollution control mechanisms and more.
For more information on special purpose loans, go to http://www.sba.gov/services/financialassistance/sbaloantopics/SpecialPurposeLoans/index.html.
