Traditional bank financing has been around for many many years and is still a viable option for small businesses. The Small Business Administration (SBA) partners with lenders, community development organizations and microlending institutions to set guidelines for small business loans. The SBA does not directly lend to small businesses. The SBA guarantees that the loans will be repaid which lowers or eliminates some of the risks for the lenders. The loan guaranty requirements and practices can change as federal fiscal policy and priorities changes to meet current economic conditions so don’t rely on past policy or guidelines when seeking funding through SBA’s loan programs.⠀

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The three debt financing programs the SBA has are:⠀⠀⠀⠀⠀⠀⠀⠀⠀
7(a) Loan Program⠀⠀⠀⠀⠀⠀⠀⠀⠀
Micro-Loan Program⠀⠀⠀⠀⠀⠀⠀⠀⠀
CDC/504 Loan Program⠀⠀⠀⠀⠀⠀⠀⠀⠀

7(a) Loan Program⠀

SBA’s most common and flexible loan program, the 7(a) Loan Program includes financial help for businesses with special requirements. This loan can be used for working capital, machinery, equipment, furniture and fixtures, the purchase of land and buildings, construction of new buildings, renovation of an existing building, to establish a new business or assist in the acquisition, operation or expansion of an existing business, and debt refinancing. 7(a) loans have a maximum loan amount of $5 million. SBA does not set a minimum loan amount. Loans guaranteed by the SBA are assessed a guarantee fee. This fee is based on the loan’s maturity and the dollar amount guaranteed, not the total loan amount. On loans under $150,000 made after October 1, 2013, the fees will be set at zero percent. Interest rates are either fixed or variable. Learn more information on this program here SBA.gov.

Micro-Loan Program⠀

The Micro-loan program provides loans up to $50,000 to help small businesses expand. The average microloan is about $13,000. The loans can be used for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery or equipment, but can’t be used to pay existing debts or purchase real estate. The SBA provides funds to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending. Each intermediary lender has its own lending and credit requirements. Generally, intermediaries require some type of collateral as well as the personal guarantee of the business owner. The loan repayment terms vary based on several factors, including the loan amount, planned use of funds, requirements determined by the intermediary lender and the needs of the small business borrower. The loan repayment terms vary based on the loan amount, use of funds, needs of the borrower and the requirements of the intermediary lender. Interest rates vary are subject to the intermediary lender and their costs. The maximum repayment term for SBA micro loans is six years.

CDC/504 Loan Program⠀

The CDC/504 Loan Program provides businesses with long-term fixed-rate financing for major assets, such as equipment and real estate. The loans are generally structured with the SBA providing 40 percent of the total project costs, the lender covering up to 50 percent and the borrower providing the remaining 10 percent. Funds from a 504 loan can be used to purchase existing buildings, land or long-term machinery or to build or renovate facilities or to refinance debt in connection with an expansion of the business. These loans cannot be used for working capital or inventory. The maximum amount of a 504 loan is $5.5 million, and these loans are available with 10- or 20-year maturity terms.

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Additionally, the SBA provides low-interest Disaster Loans to help businesses and homeowners recover from declared disasters.⠀The SBA provides low-interest disaster loans to businesses of all sizes. SBA disaster loans can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory and business assets. The SBA makes disaster loans of up to $2 million to qualified businesses.

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To learn about these loans and other business funding options grab my E-Guide “15 Types of Loans Available to Small Business Owners” in the Resources section of this website. Also if you need assistance in determining which loan option is right for you don’t hesitate to contact us by scheduling a free consultation.⠀⠀SCHEDULE Consultation

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