SBA Loan: Options, Benefits, and Lenders
SBA Loans: Options, Benefits, and Lenders
Part 2 of 2
In this second installment, we will further
examine what kinds of SBA loan options are available, and for what kinds
of businesses they are most advantageous. We will also discuss the different
types of SBA lenders.
There are several different lending programs
for those who qualify for an SBA loan. However, it should be noted that
not every SBA approved lender offers every loan option; some lenders may
be flexible than others.
Loan programs are generally intended to
encourage long term small business financing, however, actual loan maturities
are based on several different factors; 1) the ability to repay, 2) the
purpose of the loan proceeds, and 3) the useful life of the assets financed.
However, maximum loan maturities have been established: twenty-five years
for real estate and equipment and seven years for working capital.
Basic 7(a) loan Guaranty: The 7(a)
is an SBA guaranteed loan provided through SBA certified commercial lending
institutions. The maximum loan amount for a 7(a) is $2 million, with the
SBA guaranteeing up to 75% or $1.5 million.
Interest rates for 7(a) SBA loans are usually
negotiated between the borrower and the lending institution. However, the
SBA itself has set maximum interest rates depending on the loan amount,
the highest rate being 4.75 percent on a loan of $25,000 or less with a
maturity of seven years or more.
Because of its flexibility, the 7(a) is
ideally suited for start-up or small growing businesses who are denied
financing through other sources. The loan funds can also be used for a
wide variety of purposes: renovation, real estate, equipment, payment of
prior debts, etc.
Certified Development Company (CDC),
a 504 Loan Program: The 504 SBA loan is designed to not only benefit
the small business that receives the loan funds, but also the community
in which the business resides. Each 504 loan is administered through a
CDC, a private, nonprofit corporations set up to contribute to the economic
development of their specific community or region. The CDC will make small
business loans up to a maximum of $2 million with the understanding that
the business will use the funds in a manner that will further community
or regional public policy goals. Typical goals may include: business district
revitalization, export expansion, rural development, expansion of minority
business development, etc. In total, there are about 270 CDCs nationwide,
each covering a specific geographical area.
Interest rates on 504 loans are pegged
to an increment above the current market rate for five-year and 10-year
U.S. Treasury issues. Maturities of either 10 or 20 years are available.
The 504 loan program is ideal for businesses in need of "brick and mortar"
financing such as equipment or building acquisition.
MicroLoan, a 7(m) Loan Program:
The MicroLoan Program provides very small loans to start-up or growing
small businesses. Under this program, the SBA makes funds available to
nonprofit community based lenders who act as intermediaries. These lenders
in turn make loans to eligible borrowers in amounts up to a maximum of
$35,000. The average loan size is about $10,500. Applications are submitted
to the local intermediary and all credit decisions are made on the local
level.
In addition, each intermediary is required
to provide business based training and technical assistance to its borrowers.
Individuals and small businesses applying for microloan financing may be
required to fulfill training and/or planning requirements before a loan
application is considered.
This type of SBA loan is ideal for small
businesses that need extra money for working capital or the purchase of
inventory, supplies, furniture, fixtures, machinery or equipment. However,
the loan funds may not be used for the purchase of real estate or to pay
existing debts.
If you qualify for and receive an SBA loan,
you can look forward to several benefits. SBA loans typically have longer
maturities than comparable bank loans. Because you will be paying the loan
back over a longer period of time, down payments and interest rates are
usually lower which means youre monthly payment will also be significantly
lower than it would be under the terms of a conventional loan.
Cameron Brown is an internet marketer specializing
in ranking
automation. For information on how an SBA Loan can benefit your small
business, visit Security National Capital
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