| What You Need to Know About SBA Loans |
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Overview The SBA has numerous financial lending avenues to help business owners excel: 7(a), Certified Development Company (504), the microloan 7m program, and the prequalification service. The 7(a) is the broadest in scope of all the loans and will be addressed in more detail shortly. The CDC 504 program is for long-term machinery or equipment. The microloan is for $35k or less and can not be used to pay other debts or purchase real estate; it is extended or guaranteed by the SBA to an intermediary and then to the small business; the SBA does not guaranty the loan with the small business in this case. The pre-qualification program is self-explanatory; this allows a business owner to approach a commercial lender after already having received qualification from the SBA. It must be noted that the SBA typically does not extend loans; the SBA guarantees the loan extended by a commercial lender. The 7(a) Program The SBA's most widely guaranteed loan is the 7(a). The 7(a) loan can be used for a number of business interests: working capital, equipment, real estate, buildings, finance other forms of debt that have undesirable terms (certain requirements must be met) or to purchase a new business. The loan will not exceed $2m and the SBA will only guaranty $1.5m of the $2m loan. Loans for working capital typically have a maturity of 7 years and loans for real estate and equipment typically mature at 25 years. The person seeking a 7(a) loan approaches a lender and applies for a loan. The lender then decides to either fund the loan itself, seek a guaranty for part of the loan from the SBA, or turn the loan down entirely. If the SBA is approached for the guaranty, the requestor must fulfill certain criteria relating to the size of the company, the use of the funding, the type of business, and whether or not the requestor has the means to obtain the needed funds through other avenues. Just like the lender, the SBA will want to have confidence in the business's ability to generate sufficient cashflow to pay off the loan and the requestor's history of paying off past debts. Other Funding Programs
In addition to the SBA programs mentioned, there are also other means to obtain financing:
More information on the topic of small business funding can be found at www.sba.gov and www.njsbdc.com. |
Most people interested in purchasing a business are probably well aware of the different available loan programs that help potential business owners become business owners. For those just getting started in the process, here is some information regarding the Small Business Administration's most popular loan program, the 7(a).