Loans offered by the Small Business Administration are affordable financing solutions. The federal government guarantees small business loans (“SBAs”). With this sponsoring, lender risk is greatly reduced.
Knowing which type of SBA best applies to your circumstances increases chances of approval. Read on and learn about four different types of SBAs.
7(a) Guaranteed Loan Program
The 7(a) General Business Loan Guaranty Program is the most common type of SBA instrument. Startups rely on them. Existing businesses use them to meet short- and long-term needs.
Guidelines for approval are similar to standard bank loans. Interest rates are based on prime rates. The Small Business Administration doesn’t set rates but it regulates interest amounts.
A SBA may require collateral. Assets a borrower can use include receipts for marketable merchandise, machinery or stocks and bonds.
The SBA Microloan Program offers small loans for working capital. Use it for inventory purchase, furniture, supplies, equipment or fixtures. This loan is ideal for businesses that can’t go for conventional loans as the amount is too small.
The program’s available in 45 states. These loans aren’t government guaranteed. They’re administered by nonprofits with experience in lending. Revolving funds from the Small Business Administration are set up to distribute SBAs.
According to the experts at Lantern Credit, “Microloans cannot be used to pay off existing debt or buy real estate.”
504 Local Development Company Program
The 504 Loan Program is for businesses looking to purchase machinery, equipment or real estate. The loans come through CDCs (Certified Development Companies) funded by commercial financial institutions. The instruments are typically financed 10 percent by the business, 50 percent by the bank and 40 percent by the CDC.
Through the 504, businesses acquire fixed-rate, below market financing. In exchange, the business meets specific public policy goals or it creates and retains local jobs. The best candidates are ones that benefit from district revitalization of rural development. You can also be a minority-owned organization.
Economic Disaster Loans
A business affected by a natural disaster may be eligible for a SBA economic injury disaster loan (“EIDL”). Eligible companies include small business, certain private nonprofits and small agricultural cooperatives. A company needs to suffer significant economic injury. It has to result in the business being unable to manage necessary and ordinary operating expenses.
The EIDL provides necessary funds for small businesses to continue. These instruments are only available after a lender verifies the company cannot get financial aid elsewhere.
A business can receive up to $2 million in emergency aid. Lenders based loan amounts on your company’s financial and economic injury. Use funds for operating expenses and financial obligations that would be normally met if not for the disaster.
There is a separate SBA Disaster Assistance program for property damage. This is a Business Physical Disaster Loan.
Get the SBA loan you need. At Lantern Credit, you can compare small business loans. Use the latest tools to review criteria and link up with the right lender every time.