Getting to Know the SBA’s Loan Programs
For small businesses seeking the access to capital they need to grow and expand, the U.S. Small Business Administration (SBA) offers a variety of loan programs with advantageous terms and conditions.
These programs cover everything from basic business growth to real estate, equipment, disaster recovery and various other needs. The following are some of the loans available to business owners and entrepreneurs through the SBA:
Known as General Business Loans, this program covers the most common types of loans the SBA makes available. They may cover a variety of expenses, including operational costs, the purchase of inventory and accounts payable, along with short-term working capital for items like construction financing, exporting and seasonal financing.
In most cases, recipients use SBA 7(a) loans to purchase real estate, equipment, furniture, machinery, materials and supplies—or to construct or renovate existing buildings. Other eligible expenses include refinancing some forms of business debt and acquiring another business in an effort to expand operations.
Businesses may not use 7(a) loans to refinance debt through an arrangement in which the lender would take a loss, and they also cannot use the funds to pay delinquent federal or state tax withholdings. Funds also may not go toward reimbursing money owed to any of the company’s owners.
The SBA’s Microloan program offers loans of up to $50,000 each—with the average loan being about $12,000—to small businesses and some nonprofit childcare centers. Recipients may use these funds to cover working capital, furniture and fixtures, equipment, machinery and supplies. Repayment schedules vary depending on how the business is using the funds, how much the loan is for and the specific requirements of the lender. The longest repayment term the SBA allows for microloans is six years.
CDC/504 Real Estate & Equipment Loans
These loans cover the purchase of real estate, including land that contains existing buildings and structures, along with the construction of brand-new facilities. Renovation projects are also typically covered through these funds. Recipients may not use 504 loans for inventory, working capital, real estate investing or refinancing or repaying existing debt.
The SBA also offers low-interest loans to businesses, nonprofit organizations and homeowners dealing with the aftermath of natural disasters. These funds may cover replacing or repairing personal property, real estate, equipment, machinery, supplies and business assets that have been damaged or destroyed in a flood, storm, fire or other disaster.
It is important to note that the SBA itself does not actually loan money to businesses. Rather, the agency sets guidelines for lenders and guarantees the loans, reducing much of the risk to its lending partners. Consult a knowledgeable financial consultant to learn more about your options.