How Do You Apply for Small Business Administration or SBA Loans for Your Business?
SBA loans or Small Business Administration loans come in all shapes and sizes and in times like these, one might be just right for your business. But where do you get started? Should you call the SBA? No!
The agency typically does not make SBA loans directly to small businesses itself—with the exception of disaster relief loans-- but rather it depends on private banks and private lenders. The SBA acts as a guarantor of the loan or a portion of the loan. You need to go to a private bank and apply for a conventional business loan, get turned down and then apply for an SBA loan. The SBA loan program has been specifically designed to meet a business’s key financing needs including the need for debt financing (loans), equity financing (investment/seed money), and surety bonds.
If you have never applied for a business loan before, it is somewhat more complex than getting a consumer loan. The lender wants to know the following from you:
- What is the purpose of the loan?
- What is the loan amount?
- When and for how long will you need the loan?
- What collateral will you use?
- Will you, the owner, personally guaranty the loan—even if you are incorporated, the bank will want you to guaranty it.
You will need to prepare a loan request proposal for the bank. If you do not have a business plan, you need to develop one before you go to the bank.
Currently, the SBA provides various financial assistance programs. Some of its more popular programs include:
- Basic 7(a) Loan Guaranty Program—This program was set up to allow qualified businesses to get financing when they might not be eligible through the bank. Loans through this program can be used for working capital, machinery and equipment, furniture and fixtures, land and buildings, leasehold improvements and debt refinancing (under special conditions). Commercial lending institutions make these loans.
- Certified Development Company (CDC), a 504 Loan Program—The SBA says that the 504 Program provides long-term, fixed-rate financing to small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a CDC (funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower. These loans are made through certified development companies (private, non-profit corporations set up to contribute to the economic development of their communities or regions).
- The Microloan, a 7(m) Loan Program—This program provides short-term financing of up to $35,000 to small businesses and not-for-profit child-care centers for working capital or the purchase of inventory, supplies, furniture, fixtures, machinery and equipment. You cannot pay off existing debt or buy real estate with this type of loan. These loans are made through specially designated intermediary lenders (nonprofit organizations with experience in lending and in technical assistance
- Disaster Relief Loan Program--If you are living in a declared disaster area and are a victim of that disaster, you could be eligible for financial assistance. The SBA often makes these loans directly.
- Special Purpose Loans--The SBA offers various special purpose loans to assist businesses. According to the SBA, these loans include financing to help you grow your business to meet demand internationally, to aid business that have been impacted by NAFTA, to assist you in implementing employee ownership plans and help implement pollution control mechanisms, in addition to other special programs.
- Surety Bonds Program--A surety bond is a three-party instrument between a surety, the contractor and the project owner. The agreement binds the contractor to comply with the terms and conditions of a contract.
- SBA ARC Loan Program--If your small business is stressed meeting expenses during these economic times, the SBA has a new loan program designed just for you. SBA’s America’s Recovery Capital Loan Program can provide up to $35,000 in short-term relief for viable small businesses facing immediate financial hardship to help ride out the current uncertain economic times and return to profitability. Each small business is limited to one ARC loan.
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