Whether you are considering starting a business or are already running it, money is your lifeblood. Small businesses have financing as a major factor in keeping their business afloat, and sometimes getting financing for the same proves to be more beneficial for them. The Small Business Administration, SBA, helps put it together for small businesses. It provides them with the financing they need to operate and even grow the business.
This is a federal government agency that has appeared for many small businesses. Rather than lending money directly to companies, it sets and uses guidelines for loans through partners such as credit unions, microfinance institutions, banks, and community development organizations. The Small Business Administration eliminates risk for lenders by guaranteeing repayment of portions of loans granted. It can be described as a win-win situation because the businessmen get the financing they need and the lenders make sure that the loans are paid back which makes the agency very beneficial. Loans simply provide access to capital at minimal costs without the need to surrender equity.
It is important to note that SBA loan programs are designed specifically for small businesses that do not have access to other types of financing. As a small business owner, you need to be aware of loan programs so that you can apply for the right one for your business.
7(a) Loan Program – This is the primary program that aims to assist start-ups as well as existing small businesses that need financing. Loans are basic and the money can be for general business purposes such as equipment, machinery, rental working capital improvements, fixtures, furniture and other business needs. You can basically take care of business acquisitions, consolidating unsecured debt into a new loan, purchasing large inventory, and expanding the business.
CDC/504 Loan Program – This loan program under the SBA offers long-term financing for large asset purchases. Assets can include commercial real estate, buildings, land or even equipment. The loans usually cover 40% of the total cost of the project, the co-lender covers 50% and the borrower pays another 10%. Loans under this program are never used for inventory or equity.
Disaster Loans – Businesses can be affected by disasters and this can be devastating to any business. The SBA provides disaster loans to businesses affected by declared disasters. Low-interest loans are designed to help replace or repair damaged machinery, personal property, business assets, inventory, and equipment. You will basically be able to get back on your feet after disasters with very low interest with this loan program.
Small Loan Program – The loan program gives very small loans to start-ups, developing companies, or newly established companies. They usually have lenders brokered by the SBA and are mostly non-profit organizations with some experience in technical assistance and lending. Although microloans cannot be used to pay off existing debts or purchase real estate, they can still come in handy for purchasing fixtures, equipment, machinery, supplies, and inventory or for use as working capital.