SBA Loan: Options, Benefits,
and Lenders Part 2 of 2 |
By Cameron Brown |
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In this second installment, we will further examine what kinds of
SBA loan options are available, and for what kinds of businesses
they are most advantageous. We will also discuss the different
types of SBA lenders.
There are several different lending
programs for those who qualify for an SBA loan. However, it
should be noted that not every SBA approved lender offers every
loan option; some lenders may be flexible than others.
SBA loan programs are generally intended to encourage long term
small business financing, however, actual loan maturities are
based on several different factors. 1) the ability to repay, 2)
the purpose of the loan proceeds, and 3) the useful life of the
assets financed. However, maximum loan maturities have been
established: twenty-five years for real estate and equipment and
seven years for working capital.
Basic 7(a) loan
Guaranty: The 7(a) is an SBA guaranteed loan provided
through SBA certified commercial lending institutions. The
maximum loan amount for a 7(a) is $2 million, with the SBA
guaranteeing up to 75% or $1.5 million.
Interest rates
for 7(a) SBA loans are usually negotiated between the borrower
and the lending institution. However, the SBA itself has set
maximum interest rates depending on the loan amount, the highest
rate being 4.75 percent on a loan of $25,000 or less with a
maturity of seven years or more.
Because of it's
flexibility, the 7(a) is ideally suited for start-up or small
growing businesses who are denied financing through other
sources. The loan funds can also be used for a wide variety of
purposes: renovation, real estate, equipment, payment of prior
debts, etc.
Certified Development Company (CDC), a 504
Loan Program: The 504 SBA loan is designed to not only
benefit the small business that receives the loan funds, but
also the community in which the business resides. Each 504 loan
is administered through a CDC, a private, nonprofit corporations
set up to contribute to the economic development of their
specific community or region. The CDC will make small business
loans up to a maximum of $2 million with the understanding that
the business will use the funds in a manner that will further
community or regional public policy goals. Typical goals may
include: business district revitalization, export expansion,
rural development, expansion of minority business development,
etc. In total, there are about 270 CDCs nationwide, each
covering a specific geographical area.
Interest rates on
504 loans are pegged to an increment above the current market
rate for five-year and 10-year U.S. Treasury issues. Maturities
of either 10 or 20 years are available. The 504 loan program is
ideal for businesses in need of "brick and mortar" financing
such as equipment or building acquisition.
MicroLoan,
a 7(m) Loan Program: The MicroLoan Program provides very
small loans to start-up or growing small business concerns.
Under this program, the SBA makes funds available to nonprofit
community based lenders who act as intermediaries. These lenders
in turn make loans to eligible borrowers in amounts up to a
maximum of $35,000. The average loan size is about $10,500.
Applications are submitted to the local intermediary and all
credit decisions are made on the local level.
In
addition, each intermediary is required to provide business
based training and technical assistance to its borrowers.
Individuals and small businesses applying for microloan
financing may be required to fulfill training and/or planning
requirements before a loan application is considered.
This type of SBA loan is ideal for small businesses that need
extra money for working capital or the purchase of inventory,
supplies, furniture, fixtures, machinery or equipment. However,
the loan funds may not be used for the purchase of real estate
or to pay existing debts.
If you qualify for and receive
an SBA loan, you can look forward to several benefits. SBA loans
typically have longer maturities than comparable bank loans.
Because you will be paying the loan back over a longer period of
time, down payments and interest rates are usually lower which
means you're monthly payment will also be significantly lower
than it would be under the terms of a conventional loan. |
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