If you are a small business, you should know that Small Business Administration (SBA) loans are designed especially for your needs. In today’s world, you can get a loan for almost everything that you want using personal loans, mortgages and business loans, among others.
For business loans, there are different types of loans that you can take depending on your business and what it’s offering to the larger market. SBA loans can be used to help finance small businesses in the US. The idea behind the loan isn’t all momentary as it includes business counseling as well.
To learn more on SBA and what it entails including who is eligible for this type of loan, you should read on. Up next, you’ll find information on rates and fees as well as other pertinent details you should know before deciding on an SBA loan.
What Small Business Administration Entails
The SBA was established in 1953 and has been used to help small businesses across the US. The initial idea behind the creation of the SBA was to help small businesses get contracts with the government and also be part of counseling events by the government.
The government also was seeking to empower the small businesses with capital on top of all that.
How It Works
In general, most people tend to think that the SBA is a lender, but it doesn’t have lending capabilities. A lot of people tend to assume this because one of SBA’s main forms of assistance is capital. What happens is that the SBA, in conjunction with lenders can help your small business secure funds for operation.
When the SBA connects you with a lender, the government guarantees part of your loan with the lender. Typically, the government guarantees around 75% – 85% of your loan. For the lender, this is a plus, since if you fail to pay the loan, they’ll only have lost around 15% of the loan.
The Three SBA Programs
There are three main programs you can use to get help from SBA and they operate quite differently and they are as follows.
7(a) Loan Program
The first program which is by far the popular of all the programs here is the 7(a) Loan Program. This program has been used to help finance small businesses and get them to a competitive level. The funds that are acquired through this program have zero restrictions.
The funds can be used for just about anything that you can think of for the betterment of the business. You can secure a loan for up to $5 million. Not many businesses, however, get the eligibility to get that amount. And the loan can last from 7-25 years making it one of the most flexible loans on the market.
The average amount given for this loan is around $400,000. The interest levied on the loan is variable from 6-13%
Microloans are preferred by a number of small businesses as they have few restrictions associated with them. The kicker, however, is that the amount is usually small and can be used for operation capital and more.
The other thing about the SBA microloans is that you can’t buy real estate with the loan. You also can’t use the loan to refinance another loan. You can borrow up to $50,000 when you’re looking to take this type of loan and the average of the loan is usually around $13,000.
The interest charged on this loan is set at 8-13% and the loan term for an SBA microloan is up to 6 years.
This is the biggest loan that you can get through the SBA. The loan, however, doesn’t come in monetary terms and you can only use the loan within the restrictions set. You can only use the loan to buy equipment or real estate.
For a $5 million loan, you’ll have from 10-20 years to pay off the loan. You have to put down a payment of 3% of the amount you want to get and the loan interest is set at 5-6%. You’ll also have to pledge 10% of your purchase as collateral.
The first qualification for the SBA is that the business should be a small business in accordance with SBA rules. It means your company should have a certain number of employees and that can be proven by your payslips. You also need to have a good credit score.
Small businesses take time to grow due to lack of capital. But that shouldn’t be the case anymore thanks to SBA loans as they come in a variety of forms that can assist you with most of your business expenses.