Small businesses are the backbone of our economy.
As these businesses transition and grow, the need for additional funds increases. However, bank lenders are very often reluctant to service these needs because of the risks involved.
The Small Business Administration (SBA) provides small-business loans guaranteed by the SBA and issued by participating lenders, mostly banks which helps to mitigate those risks. These loans are guaranteed by the SBA, which allows lenders to offer flexible terms and lower interest rates. They guarantee loans of $150k or less at up to 85% and 75% of loans over that amount.
Loan rates are guided by a set of rules outlined by the SBA.
The participating lenders use the current Prime Rate then add a markup known as the “spread.” The rates vary depending upon the amount of the loan and the term needed. That term is determined by how the loan will be used. Longer terms usually dictate a lower interest rate which leaves more available capital for other business needs. A shorter term very often dictates a higher interest rate, but can offer urgently needed funds at a critical juncture. The SBA does require a personal guarantee from all of the major stakeholders, and that can in turn be used to put all personal assets at risk if they loan is defaulted.
There are a variety of different types of SBA loans.
The most popular is the 7(a) loan program, which is the primary loan, but, there is also a 504 Loan, Microlan loan and SBA Disaster loans. Each of these loans has specific criteria for qualification and loan cap. This can sometimes make it difficult to acquire one that meets your specific needs, so it is important to understand each before you apply. Here is a list of each:
The 7(a) loan is the flagship loan and serves as an umbrella for several other programs. This includes products from the Export Loan Programs, Rural Business Loans, Small Loan Advantage (SLA) and Express and Pilot Programs just to name a few. Other common uses can be for working capital, machinery/equipment, commercial real-estate and can be used by existing firms as well as start-ups.
AT A GLANCE – If you are looking for a loan max of $2 million for Real Estate or equipment with a 25 year term, or operating capital with a term from 7 years and not looking for any type of speculative or non-profit business, but have small weaknesses in your application, then this is the loan for you.
The Micolan Loan is a more directed loan and meant for quick distribution and short-terms. The SBA dictates that it must be from “specifically designated intermediary lenders” therefore the criteria for these lenders is much more specific and requires a much higher participation level by the lender themselves. That makes them ideal for startups who are in need of that level of guidance and instruction. These funds can also be used for purposes such as working capital, machinery & equipment and inventory purchases.
AT A GLANCE – If you are looking for a loan for a farming or non-traditional farm type operation for equipment, repairs, buildings, conservation, or other related needs with a max of $50k with a maximum term of between 7- 25 years and can be secured by a first lien, then this is the loan for you.
SBA 504 Loan
The SBA 504 Loan is most popular commercial real estate financing such as building and land acquisition, equipment costs and renovations. One of the most attractive aspects of this loan is that it offers financing of up to 90% of the total cost, which leaves only a 10% risk of exposure. Another attractive aspect of this loan is that it offers long-term loans at a fixed interest rates.
AT A GLANCE – If you are looking for a loan that is designated for areas of economic development, and have a net worth of less then $15 Million and average net income of less than $5 million after taxes for the last two years, then this is the loan for you.
SBA Disaster Loan
The SBA Disaster Loan is a loan that is determined by a regional declaration of a disaster. These loans come in three types; Business physical disaster, Economic injury disaster and Home disaster loans. Each has some certain criteria that must be met to qualify. There is a limit on this type of loan of $2 million and in some cases when you qualify for one you are automatically qualified for the other.
AT A GLANCE – If you are looking for an SBA Disaster loan and are located in a zone that is a declared a disaster, and looking for up to $2 million for as long as 30 years to repair or replace lost or damage then this is the loan for you.
Now is the best time to get an SBA Loans. For more information on how you can your Small Business Loan, simply click on the link below so we can examine your situation more closely and insure that you get the best possible loan package. We have the widest selection of business loans at your fingertips, and with one easy “soft credit” check, we can see at a glance which programs are available for you. As always, we are here to assist you in every decision, go ahead and check now!