SBA Loans

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Definition

The US Small Business Administration (SBA) is an important resource for small businesses. SBA provides a number of financial assistance programs for small businesses that have been specifically designed to meet key financing needs, including debt financing, surety bonds, and equity financing. In this post we will talk about the different financial assistance programs that the SBA offers. If your startup needs a business plan, our Level 2 Business Plans are written specifically to meet the SBA’s requirements for funding.

1. 7(a) Loan Program: The 7(a) Loan Program is SBA’s primary program to help start-up and existing small businesses obtain financing when they might not be eligible for business loans through normal lending channels. The 7a loans were created to help businesses with special requirements. The programs encompass express loans, loans for exporters, loans for small and rural communities, seasonal funding loans, and loans for borrowing cost fees.

For the 7a loans, SBA itself does not make loans, but rather guarantees a portion of loans made and administered by commercial lending institutions. 7(a) loans are the most basic and most commonly used type of loans and they are also the most flexible, since financing can be guaranteed for a variety of general business purposes. Most American banks participate in the program, as do some non-bank lenders, which expands the availability of loans. Participating lenders agree to structure loans according to SBA’s requirements, and apply and receive a guaranty from SBA on a portion of this loan.

2. CDC/504 Loan Program: The CDC/504 loan program is a long-term financing tool for economic development within a community. The 504 Program provides small businesses requiring “brick and mortar” financing with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization. For the 504 loans, 50% of funding is contributed by the bank or private sector lender, 40% is provided by a CDC, and the business owner a 10% equity share.

A Certified Development Company (CDC) is a private, nonprofit corporation set up to contribute to the economic development of its community. CDCs work with SBA and private sector lenders to provide financing to small businesses.

3. Microloan Program: The Microloan Program from the SBA provides short-term funding to businesses by making funds available to non-profit community-based lenders who then make loans to eligible borrowers. The maximum loan amount is $50,000 with the average loan around $13,000.

4. Disaster Loans: Disaster loans are available to businesses and individuals to repair damage to physical property (including real estate, personal property, equipment, inventory and business assets) damaged or destroyed by a declared disaster. Loans are also available to assist business, located in a declared disaster area, who incurred economic injury, regardless of physical damage. SBA Disaster loans also cover personal home and property, and funds for businesses unable to meet operating expenses because an essential member was called-up for duty.