SBA Loan Program

Depending on the size of your small business or the way in which you want to expand it, there are a number of small business loan programs offered through the Small Business Administration (SBA). Each of these programs is designed to benefit a certain type of business, and most are offered under the condition that the improvements made will in some way benefit the community at large.

In most cases, the SBA itself acts as a guarantor for the loans and does not offer the loan itself.

One basic SBA loan program is known as Loan Prequalification. In this program, the SBA looks at certain attributes of a small business owner who is looking to borrow amounts under $250,000, including credit, character, experience, and reliability. This analysis or potential sanction can then be taken to a lender, thereby increasing the likelihood that a loan will be granted.

The SBA also offers a basic 7(a) Loan Guaranty program. This is the SBA's primary loan program, and it is also the most flexible. It is designed to help small businesses obtain funds when normal lending channels may be closed to them. The loan comes through normal commercial lending channels and has a maturity of between 10 and 25 years and can be used for a number of purposes such as renovation of existing structures, construction and expansion, furnishings and fixtures, land and buildings, and debt refinancing.

For small businesses looking to expand in terms of real estate or equipment, looking for so-called "brick and mortar" financing, the SBA loan program classified as 504 may be the right choice. These loans are offered through CDC's (Certified Development Companies) that are created to promote economic growth in their respective communities. These CDC's pay out SBA money at a ratio of about 40% of the total loan: the senior lien of 50% comes from commercial lending companies, and 10% comes from the borrower. In most situations the assets that are purchased becomes the collateral, and the 3% fee for this type of loan can be paid with the loan itself.

These CDC loans are offered to small businesses with a sound business plan designed to benefit the community. Generally, the amount of the loan won't exceed $1,500,000, but in certain circumstances, such as businesses owned by women or veterans, and specially classified businesses that have all their production in the Unites States, the amount can raise to $2,000,000 or even $4,000,000. These loans are only offered in certain locations.

Another SBA loan program is the 7(m) or "microloan". This is offered to small businesses or child care centers and usually amounts to below $35,000. These loans cannot be used to pay existing debts or to buy real estate, but instead are granted for supplies, equipment, furniture, fixings, and machinery. The SBA makes or guarantees these loans to small nonprofit organizations, who in turn make the loan to the small business. This loan, however, is only offered in selected locations.