Whether you are thinking of starting a business or already have one, money is your lifeline. For small businesses, financing is an important factor in keeping their business afloat and sometimes getting financing to do so proves to be most beneficial for them. Small Business Administration, SBA, helps put together for small businesses. It provides them with the funding they need to run the businesses and even grow them.
This is a federal agency that has come through for many small businesses. Instead of lending the money directly to the companies, the guidelines for the loans are set and used by partners such as credit unions, microcredit institutions, banks and community development organizations. SBA eliminates lender risk by guaranteeing partial repayment of loans made. It can be said to be a win-win situation as the businessmen get the financing they need and the lenders are assured of the loans being repaid, which makes the agency very beneficial. The loans simply provide access to capital at the lowest cost without having to give up equity.
The loan programs
It is important to note that SBA loan programs are specifically structured for small businesses that do not have access to other types of financing. As a small business owner, you should be familiar with the loan programs so you can apply for the right one for your business.
7(a) Loan Program – It is the primary program to support start-ups as well as existing small businesses that need financing. The loans are easy and the money can be used for general business purposes such as equipment, machinery, working capital improvements, fixtures and furniture, and other business purposes. You can basically take care of business acquisitions, consolidate unsecured debt into a new loan, buy large inventory and expand the business.
CDC/504 Loan Program – This loan program under SBA provides long-term financing for the purchase of large assets. Assets can include commercial property, buildings and land, or equipment. The loans typically cover 40% of the total project cost, with the participating lender covering 50% and the borrower contributing the final 10%. Loans under this program are never used for inventory or capital.
Disaster Loans – Businesses can be hit by disasters and this can be devastating for any business. The SBA expands catastrophe loans to companies affected by declared disasters. The low-interest loans are structured to help replace or repair damaged machinery, personal property, business assets, inventory and equipment. With this loan program, you will basically get back on your feet after a disaster at very low interest rates.
Microcredit Program – The loan program provides very small loans to start-ups, growing businesses or start-ups. They usually have intermediary lenders nominated by the SBA, most of which are non-profit organizations with some technical assistance and lending experience. Even though the small loans cannot be used to pay off existing debts or buy real estate, they are still useful for purchasing facilities, equipment, machinery, supplies and inventory, or as working capital.