Know Your Options With Small Business Administration Loans
Before you apply, know your options with Small Business Administration Loans.
A. THERE ARE CURRENTLY THREE DIFFERENT SBA LOANS OFFERED TO SMALL BUSINESSES.A Small Business Administration (SBA) loan is a great alternative to obtaining funds for many of our small business owner clients, rather than, the usual lending channel of a bank or credit union. What can be attractive to many business owners is that these loans are long-term and offer a low rate. Particularly attractive to business owners whose businesses are just getting off the ground. With the SBA’s loan popularity, the federal government has made the application process tedious and difficult when completing. Before you apply, consider which SBA loan is right for your specific needs because not all SBA loans were created equally. Each loan will vary depending on your companies immediate and long-term goals.
B.THE 7(A) LOAN PROGRAM IS THE MOST POPULAR.The 7(a) loan program is the most popular SBA loan program to date. Noted as the most popular of the three existing loan programs, the SBA loan program offers a purchaser the flexibility of using the capital for purchasing equipment or real estate, acquiring an existing business or refinancing existing debt. The credit limit is high, with a maximum of $5,000,000.00. Before you run out to your local lender to complete a 7(a) application, you should be aware that a guarantee will be attached to your loan. To elaborate, this guarantee, is a fee of about 3.5% and attaches to a higher dollar loans between $700,000 and one million dollars. And, over a million dollars receives an additional 0.25% guarantee fee. With these loans, the interest rate offered, will be either fixed or variable. Often, the interest rate on these loans range between 6 and 13%. On the other hand, guaranteed fees, are paid over the life of the loan giving ease for some small business to manage.
C. THE CDC/504 LOAN PROGRAM.Designed to cater to small businesses that need financing for major fixed access purchases. Such as, the purchase of land or existing buildings, construction of new buildings, renovation of existing buildings or long-term purchase of machinery or equipment. This loan has the same cap as the 7(a) loan of five million dollars. To qualify for this loan however, the applicant must be able to show that funding is needed. Moreover, applicants must have a net worth of less than 15 million dollars and a net income of less than five million dollars. Basically, the SBA loans these funds to new undercapitalized businesses to help them get off the ground. The program is designed for that purpose. In the case of the 7(a) loan, there is a guarantee fee of three percent. Unlike the 7(a) loan, there is a required down payment of ten percent to secure the loan the first time. 45 days after closing, when your loan is pooled with other like loans, you will then know the exact rate on the loan. The loan rates for these loans typically range bewteen 5 to 6%.
D. THE MICROLOAN PROGRAM.Finally, the SBA loan programs is designed for new small businesses whose needs fall below most lender’s minimums. These loans typically are used for working capital, furniture, fixtures, machinery, inventory, or supplies. The name microloan means these loans are much smaller and have a cap of $50,000.00. Rates on these loans vary between 8 and 13%. These loans are so small and risk far less, in fact, the SBA does not attach any guarantee fee to the loan itself.
Please be apprised that many of the loans also come with documentation and legal fees attached. So, you should consider those costs as part of your decision-making process.