Finding money for your new business today with this review of the top three SBA loan programs.
Despite what you may see on the infomercials late night or certain websites, none of SBA loan programs involves free money, government grants or interest-free loans. In fact, the SBA even lends funds directly to contractors – you need to build a relationship with a loan officer at your local bank, credit union or financial intermediary without profit to access programs.
But once you do, there are a number of resources to obtain the necessary capital to start or expand your small business. Last year, they offered more than $ 50 million in SBA loans per day for small businesses in the United States. In the column this month, I thought to check the descriptions and eligibility criteria for the three SBA loan programs most popular.
7 (a) Loan Program
7 (a) is the SBA’s most popular loan program. As the owner of a small business, you can get up to $ 750,000 of its 7 (a) local lender, backed by a partial guarantee from the SBA. Note that the SBA does not pay money directly. What they are doing is making it less risky for a local lender to provide funds. 7 (a) loans are generally used for capital purchases and leasehold improvements are working. It requires all owners of a company with a stake of 20 percent or more to secure the loan.
Once your lender decides that the money 7 (a) is what you need, it is likely to start hearing the names of different 7 (a) program. For example, if you borrow less than $ 150,000, which will follow the LowDoc program, which was established in 1993 to reduce the onerous paperwork. LowDoc a loan application is a one-page form; its application is on one side and ask the SBA guarantee lender for your loan is the other. The SBA responds to requests for LowDoc within 36 hours.
SBA Express is a program for lenders with a good record of SBA loans. It aims to get money – in this case, as much as $ 250,000 – quickly into the hands of entrepreneurs. Based on the success of the SBA Express program, the SBA began CommunityExpress, designed to improve access to capital for entrepreneurs in low-income and moderate and provide both pre- and post-loan technical assistance.
Eligibility: Eligibility criteria for the program 7 (a) is the largest of all SBA loan programs, but they are still very restrictive for new businesses and related financial services business. See this page on the SBA website for a list of the types of businesses that qualify. In general, all SBA programs are for small enterprises (ie companies with less than $ 7 million of tangible net worth and less than $ 2.5 million of net income), but generally banks do not pay for the commissioning of companies that do not have two to three years the value of the statements and the heritage of some owners in financial business. Some banks allow you to use the money as part of their family heritage, but you are required to formalize these small business loans with a payment plan that is subordinate to bank debt.
504 Loan Program
The 504 loan program is intended to finance the purchase of assets such as land or equipment. Usually the purchase of assets is financed by a loan from a bank or other lender in your area, with a second loan from a Certified Development Company (CDC), which is funded by an SBA guarantee up 40 percent of the value of the asset, which is usually a loan of up to $ 1 million – and a contribution of 10 percent of the borrower’s assets. This structure allows the main lender for funding – the bank – to reduce their exposure to rely on the CDC and the SBA to assume much of the risk.
Eligibility: As 7 (a), the program is limited to 504 small businesses with less than $ 7 million of tangible net worth and less than $ 2.5 million in net income. However, given that the fund 504 loans can not be used for the capital or inventory, consolidating or repaying debt, or refinancing, the program tends to exclude most services companies need to buy land or team. 504 guaranteed personal loans are also needed.
7 (m) Microloan Program
The microcredit program is being revised budget, and the political winds are currently blowing in their favor. The program is intended to provide “small” loans of up to $ 35,000 that can be used for a wide range of objectives to start and grow a business. Unlike the 7 (a), the funds are not provided by banks; rather, they come directly from the SBA (now you know why it is unpopular with the people in charge of the budget) and business owners are administered by nonprofit community-based intermediaries. To find the name of an intermediary micro-lender in your area, visit the SBA website.
Eligibility: The microcredit program is the start of use. All new businesses are eligible. Although the maximum loan amount is $ 35,000, the average loan is about $ 10,000. The only drawback is that microcredit borrowers generally have to register for the technical assistance being given by the micro-lending intermediaries. For some entrepreneurs, this is a great resource that provides cost-effective sales training. Others, however, see it as a waste of time, but is a necessary precondition for a microcredit.
Although I only promised the opinion the three main SBA loan programs, I do not want to mention two other loan programs for special purposes intended as certain types of companies. Working capital of the export program in the short term working capital supply for small businesses, export and DELTA program provides financial and technical assistance to help businesses that depend on the transition defense facilities to markets civilians. You can connect to the SBA website for more information on these two programs.