An Entrepreneur’s Guide to SBA Loans

There are a number of loan types out there that you may be considering for your small business. Among them are several SBA loan options. These loans come in a few types in order to cover a variety of small business needs. Continue reading to learn a bit more.

What They Are

SBA loans are loans guaranteed by the Small Business Administration (SBA). As the SBA does not usually act as a lending institution itself, these loans are typically offered by banks or private lending companies with the SBA acting as a backer on the loan for qualified applicants.

Types of Loans Available

Depending on your business needs you may want to look at one of several loan types. Basic 7(a) loans are often the first type of SBA loan many people think of. This loan type has the widest variety of uses including working capital, real estate, office furniture and technology, and more. In some cases this loan type may also be used to refinance debt.

504 SBA Loans provide funding for businesses investing in real estate, or expanding or updating their current property and buildings. These loans have fixed rates and are long term loans which require the borrower to put up 10 percent of the equity. The lender then puts up around 50 percent of the loan and a CDC contributes the other 40 percent.

SBA micro-loans are short term loans designed for small businesses and non-profit child care centers. These loans are usually used for inventory, supplies and office equipment needs. There are more restrictions on usage of these loans.

How to Qualify

Each loan type offered by the SBA has different qualification requirements. The basic 7(a) loan qualifications include that your company operates or will operate for profit, have owner equity to invest in the business, the business owner has considered other financing options prior to application, and the business operates within the U.S.A. or its territories.

504 loans require a business to be a for profit company with a net worth under $7.5 million and a net income under $2.5 million after taxes for two years prior to application. Micro-loans can not be used for real estate or debt, and you must be a small company or non-profit child care center to qualify.

Determining the right SBA loan for your company depends on what you need the loan funding to cover. You will also need to look at your loan type in order to determine what your company needs to qualify. If you have any questions a professional may be able to help.

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