SBA Loans: A Complete Guide for Small Business Owners

Small business owners are often at a disadvantage compared to large companies when applying for commercial loans. SBA or Small Business Administration loans are handled through the US Small Business Administration. There are four lending programs, such as a pre-qualification program, the 7(a) program, the CDC/504 program and the micro loan program.


Pre-qualification Program for SBA Loans


This program is designed to help applicants produce the best SBA loan application possible. It reviews applications for loans of up to about $250,000. It also notifies the applicant of the financial paperwork that must be arranged and submitted. Applying for SBA loans is an intricate process due to their size. Therefore, the pre-qualification program is focused on helping applicants handle the paperwork. It also concentrates on applicants themselves rather than just the value of their financial assets. An assistant works with the applicant directly. This assistant can be from a SBA center or a for-profit organization. The difference is that SBA assistants do not require fees as opposed to assistants from for-profit organizations.


7(a) Loan Guaranty SBA Program


The 7(a) program is the main program the SBA offers to small businesses. They can be used for a variety of business purposes, such as working capital, land, refinancing existing debt and purchasing equipment. The loans offered through this program are for small businesses that cannot qualify for standard commercial loans, such as start-up companies. Instead, they have their own set of requirements. These include companies that are profit only and are based in the U.S. Eligible business owners must also have equity and show that they have exhausted all other alternative lending options.


Certified Development Company 504 SBA Loan Program


SBA loans are a good option for small business owners looking to refurbish their machinery or explore other real estate locations. They cannot be used for real estate investment. The primary difference between a CDC/504 loan and a 7(a) loan is that a CDC/504 loan offers fixed-rate financing over a lengthy period of time. They are intended to help buoy the business as it undergoes renovations. Companies that qualify for the CDC/504 program must be profit-only and have a net worth less than $7.5 million and a net income less than $2.5 million after two years of taxes.


Micro-loan Program


7(m) micro-loans provide quick funding of up to about $35,000 over a short period of time. Eligible businesses include small businesses and not-for-profit child care centers. These loans are mainly for buying needed inventory and getting working capital and cannot be used towards real estate or existing debts.


SBA loans can be quite complicated at first glance, but can be categorized into four programs. Understanding the options available to you as a small business owner can help aid you in choosing which SBA loan would work best for you.