Types of loans granted by the SBA

Small businesses represent the American dream for many people. When a business thrives, success doesn’t just come to its owners. Small businesses feed local economies and provide jobs. For this reason, there are several types of Small Business Administration (SBA) loans.

The SBA is a government agency that provides the necessary tools and resources to help business owners. With resources ranging from training sessions to educational materials, the SBA serves as an advocate for small businesses. The SBA has also become well known among business owners because it facilitates an important piece of the small business puzzle: financing. Through its programs, the SBA offers affordable and flexible loan options for everything from expansions to new business acquisitions.

If you’re ready to take your small business to the next level and need the capital to get there, you can’t go wrong by applying for financing through an SBA loan program. But where to start?

Let’s start by learning about the programs that are available at the agency. Read these three most famous types of SBA loans are:

The SBA works with brokers to offer low-interest loans on competitive terms to small businesses and start-ups. These intermediaries can be traditional banks, private lenders, credit unions, or even non-profit organizations. The SBA has created a set of standards that its brokers follow to keep loans affordable. In this way, borrowers can expand and build their businesses without facing high-interest rates, daily withdrawals, or other inconveniences that they might encounter with more expensive forms of credit. The SBA underwrites much of the total percentage of loans made through its programs – between 50% and 85% – reducing risk and making lenders more willing to lend to small businesses.

The SBA offers several exciting programs for small business owners. Let’s explore the types of loans offered by the SBA, so you can analyze and determine which one fits the needs of your small business or new business. The 7(a) loan program is the best known, mostly because of the good terms and flexibility it offers. Within this program, there are several types of loans, with different maximum amounts, interest rates, and terms. Below we explain each of them.

Standard 7(a) Loans

When most people refer to SBA loans, the 7(a) is the program that comes to mind. Through it, small businesses can borrow up to $5 million. Interest rates are negotiable and maturities are typically 10 or 25 years, depending on how the money is used. The SBA guarantees between 75% and 85% of the total loan amount, which means less risk for lenders, so they can feel safe lending money to small business owners.

Express export and working capital export

Exporters can raise funds through SBA’s Export Express and Export Working Capital programs. Through the Export Working Capital Loan Program, SMEs can receive up to $ 5 million in funding. The Export Express program distributes loans up to $ 500,000. These loans are small but have the advantage of being approved within 24 hours.

SBA Lines of Credit (CAPLines)

SBA CAPLines lines of credit offer short-term and cyclical financing options for small businesses. Financing of up to $5 million with maximum repayment terms of 10 years is available. Four types of lines of credit are available under this program:

  • Seasonal CAP lines are used for accounts receivable and inventory that increase seasonally. 
  • Contract CAP lines are used to fund specific contracts.
  • Builder CAP lines are used for construction or renovation costs for commercial or residential buildings.
  • Work CAP lines are a type of revolving line of credit used for recurring, cyclical, or short-term needs and are used by businesses that do not qualify for long-term credit programs.

Purpose of the SBA504 loan

With some restrictions, the CDC / 504 Loan Program can be used to upgrade, expand, or improve small businesses in a variety of ways. These loans can be used to buy buildings and land, improve land, refurbish facilities, or buy long-term fixed assets. These funds can be used for refinancing as long as the debt is related to the purchase or refurbishment of the facility or equipment.

SBA 504 Loan Requirements

SBA 504 Loans borrowers must meet all standard requirements established by the SBA. They must also operate a for-profit business and must not engage in non-profit, speculative, or passive activities. Borrowers must demonstrate a legitimate need for financing. They must also find a Certified Development Company (CDC) and an additional lender that operates in their area. Collateral is usually required, although the assets being financed typically serve as collateral. Personal guarantees are also required from all applicants and owners of 20% or more.

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