The U.S. Small Business Administration offers numerous loan programs to assist small businesses. Keep in mind however, that the SBA is typically not a lending institution. Instead, it guarantees loans made by private banks and other lending institutions.
The SBA's Basic 7(a) Loan Guaranty program is what immediately comes to mind when someone mentions SBA loans. It's the primary loan program the SBA offers to help qualified small businesses secure loans that they might not otherwise qualify for through normal lending channels without the government's guaranty. It is also the most flexible of the SBA loans offered by the SBA because 7(a) SBA loans can be guaranteed for a variety of general business purposes.
Money secured through Basic 7(a) SBA loans can be used for a variety of business purposes including funding for working capital, machinery and equipment, furniture and fixtures, land and buildings, tenant improvements under lease agreements, and, under special conditions, refinancing prior debt. Basic 7 (a) SBA loans can run for maturity periods of up to 10 years for working capital and generally up to 25 years for fixed asset financing.
SBA loans under the 7(a) program are made to existing small businesses as well as start-up companies through commercial lending companies. The vast majority of small businesses are eligible to qualify for these loans provided they:
- Intend to operate for a profit
- They are engaged or plan to engage in business within the U.S.
- Have some owner equity of their own to invest in the business
- Look to alternative funding methods first, such as personal assets
Certified Development Company 504 loans provide long-term, fixed-rate financing to small businesses for the purpose of acquiring real estate or machinery or equipment for expansion or modernization. SBA 504 funding usually includes 10 percent equity from the borrower along with a loan of at least 50 percent of the total amount from a private-sector lender and a loan provided by a certified development company in an amount up to 40 percent, which is funded by a fully guaranteed SBA note and which holds a second lien on the acquired real estate, machinery or equipment.
504 SBA loans are targeted to small businesses that need financing for "brick and mortar" stores or physical plants.
To be eligible for these SBA loans, the business must be operated for profit and not have a tangible net worth in excess of $7.5 million and does not have an average net income in excess of $2.5 million after taxes for the preceding two years. 504 SBA loans nay not be used for speculation or investment in rental real estate.
SBA loan pre-qualification focuses on the applicant’s character, credit, experience and reliability rather than the applicant's assets. The pre-qualification review is based on key financial ratios, credit and business history, and the loan-request terms.
An SBA-designated intermediary works with the business owner to review and strengthen the loan application. An SBA-designated intermediary may be a local Small Business Development center or a for-profit organization. Small Business Development Centers serving as intermediaries don't charge a fee for loan packaging, but for-profit organizations do.
Contact your local SBA office for more details.