SBA loan programs have been around for a long time. Long ago, the government realized that the key to a strong economy and a strong nation was to nurture small businesses with affordable capital options that would help them grow bigger and support more jobs and a larger tax base. Thus the Small Business Administration was tasked with providing this capital.
A key point to remember is that the SBA does not actually provide the funds. The funds are actually provided by participating commercial banks and the loans are guaranteed by the SBA against loss. In order to have this government guarantee, the banks lending the money must conform to the SBA mandated guidelines that determine which applicants receive the loan and which do not.
The great part about these loan programs is their flexibility and favorable interest rates. The difficult part is the amount of documentation and the time frame needed to close them, sometimes stretching as long as 120 days or more. In the last two years, a larger problem has been approved, as the credit crisis has severely restricted the amount of small business loans being made. Below are a few of the major SBA loan programs offered by participating banks nationwide.
SBA 7a Loan – This really is several different types of 7a loans grouped under this main heading. This is the SBA's most popular and widely used program. Some key aspects of this program that prospective borrowers need to know refer to the "size standards", "use of funds" and acceptable business types. Far too lengthy to go into here, the important thing to know is that the SBA requires that a company be of a certain size, for a certain industry. This is known as acceptable use. Examples of acceptable uses of funds include purchasing land or buildings, acquiring equipment, long term working capital or restructuring existing debt, within certain limits.
SBA Express – This is a small startup loan designed to expedite the loan funding process and is technically a type of SBA 7a loan. This is targeted towards certain groups of business owners and usually has a lower loan amount. The goal with this type of loan is to get the prospective borrower an answer within 36 hours.
Micro Loan program – Gives amounts of $ 35000 or less to qualified applicants for working capital. Not for profit businesses are also welcomed to apply for this type of loan.
CDC / 504 Loan – This a longer term loan designed to purchase major fixed assets, such as buildings and equipment. The loan works in conjunction with a "certified development company" that will typically be the actual distributor of these funds to the end user once the loan has been approved within SBA mandated guidelines. SBA business size standards do apply due to the larger loan amounts.
For most small business seeking SBA loan programs, the SBA 7a and the SBA express will probably meet their needs. However, if you are needs are greater, you should go directly to the SBA website and read up, as there is a wealth of information that needs to be carefully considered prior to applying. If you are a business who has been turned down by the SBA, or in need of quick working capital flexible credit terms, click here .