You’re a small business owner (or soon-to-be) but you need additional funding to get your company where you want it to be. Not sure where to start? The U.S. Small Business Administration (SBA) can give you all the information to point you in the right direction.
Advice From BAI
Business Administration Information is a great resource for small businesses seeking funding. The following is an excerpt from their website, you can find the full post here.
As detailed at sba.gov, there are four different SBA-guaranteed loan programs you should be aware of:
- 7(a) Loan: This is the most flexible option to borrow money for general business purposes. Start-up and existing small businesses that may not be eligible for standard business loans may get funds through this program.
- CDC/504 Loan: This option provides long-term, fixed-rate financing for fixed assets, such as real estate or equipment. It can be used for expanding or modernizing.
- Microloan: Small businesses and certain non-for-profit childcare centers can receive a small, short-term loan to start up and expand.
- Disaster Assistance Loan: This program provides low-interest loans to help fix or replace real estate and other business assets that may have been damaged in a declared disaster.
According to the SBA, many loan programs will ask for similar information. Therefore, you should be prepared with the following basic documentation before applying:
- Personal background information (including criminal record and educational background)
- Business plans
- Personal credit report
- Business credit report
- Income tax return
- Financial statements
- Bank statements
- Legal documents (including business licenses and registrations, articles of incorporation, third-party contracts, franchise agreements and commercial leases)
- Collateral (depending on the loan program)
Be sure you can tell loan officers why you’re applying for the loan, how you will use it, what assets need to be purchased and what other business debt you have. They will ask.
Advice From ValuePenguin
7 (a) loan
Here is an excerpt from ValuePenguin on the SBA/s flagship 7a loan
The SBA’s flagship loan program, it can be used to fund almost any business expense with borrowing amounts up to $5 million. The maximum term is 10 years, unless the loan finances or refinances real estate or equipment with a useful life exceeding that time; in that case, loan terms may stretch to 25 years. Last year, the SBA approved 60,353 7(a) loans, totaling nearly $25.4 billion, with an average approved loan amount of about $420,000.
Under the umbrella of the 7(a) loan program are the SBA Express Loan, Community Advantage and CAPLines. Terms and conditions, including guaranty percentage and loan amount, may vary. Let’s break down these as well:
- SBA Express. This loan may be used for the same purposes as the 7(a): expansion, renovation, new construction, the purchase of equipment or for working capital at the same terms. The biggest difference, however, is that borrowing is capped at $350,00 with a 50% loan guaranty, instead of the 85% for a 7(a) loan. The SBA approved nearly $2 billion in SBA Express loans in fiscal year 2018.
- Community Advantage. Like the Express loan, Community Advantage loans may be used for the same purposes, but was designed for a faster approval process (5 to 10 days) and for underserved businesses. Those may include:
- Businesses with 50% or more of full-time workers who live in low-to-moderate income communities.
- Businesses in Empowerment Zones and Enterprise Communities; HUBZones; Promise Zones; Opportunity Zones and rural areas.
- Start-ups — firms in business less than two years.
- CAPLines. Loan amounts up to $5 million with terms that may not exceed five or 10 years, depending on the specific loan. There are four different types:
- Contract loans: May be used to perform contract work. The maximum term is 10 years.
- Builders line. Designed for construction contractors or homebuilders, this loan term may not exceed 5 years.
- Seasonal line of credit. Businesses that have been in operation for at least a year may use proceeds for seasonal inventory increases or to maintain activity during slow times. The maximum term is 10 years.
- Working capital line of credit. A loan for working capital and operations over a short term; proceeds cannot be used to pay delinquent taxes or for floor planning. The maximum term is 10 years.
Advice From Student Loan Hero
According to Student Loan Hero: If you need financing for your business at a reasonable interest rate, a loan that’s partially guaranteed by the Small Business Administration (SBA) might be the perfect way to get your venture off the ground.
The Small Business Administration works with lender partners, microlenders, and community development organizations to make low-rate loans available to aspiring entrepreneurs and existing businesses.
By partially guaranteeing small-business loans from $500 to $5.5 million, the SBA reduces risks for lenders and borrowers alike. Money borrowed through SBA loans can be used for virtually any business purpose, including funding operations and purchasing long-term fixed assets.
But to qualify for these low-interest loans, you must meet strict requirements. If you’re interested in finding out how to get an SBA loan, this nine-step guide will take you through the process from beginning to end.