Even though putting up a small business usually requires less funding compared to establishing a medium-sized company or a corporation, it is still a complex process. If you are looking to establish a small start-up, accessing financing help through the Small Business Administration (SBA) may be the right course for you.
Although the SBA technically doesn't provide loans, it acts as a guarantor to lenders so that they may extend financial help to small businesses that have a hard time accessing loans through the usual channels.
The SBA Microloan Program
Under the Microloan Program, the SBA provides funding to non-profit intermediary lenders based in the community. The lenders then use this funding to provide loans to applicants who satisfy the eligibility requirements. Under this program, small business owners can borrow up to $35,000 but a typical loan usually amounts to $13,000. You can pay for the loan for six years but this period varies depending on the preference of the lender, how much you borrow and what you plan to use the money for. Interest rates imposed on the loans may go from eight to thirteen percent.
If you want to apply for a microloan, there are certain qualifications that you must meet. Some lenders will require collateral and a written guarantee from the borrower. Also, you will have to take the training courses conducted by the lenders. This is especially helpful because the training courses focus on anything business-related and is a good way to bone up on your skills.
The 7(a) Loan Program
Under the 7(a) Program, the SBA provides a guarantee to lenders so that they share the potential risks associated with lending the money to borrowers. The lenders are the one who make the final decision as to whether to award the loan or not. A guarantee from the SBA does not mean you will automatically get the loan. Once you do qualify, however, you can borrow up to $750,000.
All business owners who want to qualify for this loan must meet the eligibility requirements set by the SBA. The Agency has detailed their criteria for eligibility in their website and these include:
- Business size requirements
- Type of business involved in
- Areas the funding will be used for
- Financial capability of the business
There are several types of loans under the 7(a) program. One of these is the SBA Express where borrowers can access up to $350,000 in loans. The SBA's turnaround time for this type of loan is 36 hours.
Another type of loan is the Community Express which is geared towards businesses in underserved areas. Borrowers may get loans of up to $250,000 plus the SBA extends technical training assistance.
The CDC or 504 Loan Program
There are certain restrictions that the SBA imposes regarding what to use the 504 loan for. Borrowers may not use the loan for refinancing, as working capital and for repaying debt among other things. Some of the areas the loan may be used for are:
