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.
