The Small Business Administration was developed to help preserve small business entrepreneurship, one of the backbones of the U.S. economy. Every year, the SBA approves tens of thousands of loans through its various programs designed to help people attain the American dream. With the help of banks and the continually growing economy, each year more people turn to SBA loans to help fulfill their business potential.
While many of the SBA’s loan programs are designed to help existing businesses, a startup can find the financial assistance it needs through an SBA microloan. Due to the risky nature of starting a business, the SBA has designed these loans to offer smaller amounts with a maximum lending ceiling of $50,000.
Microloans may have higher interest rates compared to other programs in the SBA line of loans, but they also offer easier qualification requirements. These small loans can be used to purchase equipment and supplies essential to the functions of the business.
Other SBA Loans
The SBA offers a wide array of loans designed to fit different situations and industries. However, these loans are also designed for businesses that are already in business and have a steady history.
The 7(a) loan is the SBA’s most common loan program. Businesses can borrow up to $5 million, but eligibility can be restrictive, and the process can be rigorous. These loans can be used to refinance debt, supply working capital, purchase furniture and fixtures, or purchase real estate.
The 504 loan has the same borrowing cap but can only be used for large assets. The business must have less than $5 million in yearly income after taxes. These loans can be used for land, construction, and long-term equipment. It can also be used to modernize existing facilities, including streets, utilities, and landscaping.
Financing an SBA Loan
Like any loan, SBA loans get financed through lending institutions such as a bank. This means the SBA doesn’t provide the funds for the business. They simply guarantee the loan. If the borrower defaults on the loan, the SBA has guaranteed the bank protection against loss on the loan.
An SBA loan is right for anyone starting a small business who has additional sources of funding their startup, and it is right for a large business looking to purchase large inventories and assets. It is not right for any business that needs cash quickly or needs flexibility in how the funds are utilized.