The term SBA Loans stands for the U.S. small business administration. The agency was founded back in 1953 as “The Small Business Act” to help small businesses gain access to conventional loan programs. The organization uses federal funds to guarantee a percentage of the loan amount (up to 90%), to eliminate some risk for its lenders.
The loans are not given directly from the SBA. Instead, the SBA sets guidelines for its partners that are traditional banks, online lenders, and credit unions.
SBA loans offer several types of financing. Choosing the right SBA program depends on your specific needs. However, each loan also has different eligibility conditions and requirements that you will need to meet.
If you are looking to expand your business, open a new location, purchase a new space, or even refinance debt, SBA loans could be a great option. The length of the term is significantly longer than other business loans. So in most cases, SBA loans are easier to manage. The SBA provides three primary programs for small businesses; 7(a) loans, CDC/504 loans, and microloans.
The SBA 7(a) loan program is the most popular among SBA loans. These small business loans offer an array of financing options that will fit any business need. These loans can come in the form of a term loan or a revolving credit. The differences between the loan types are in processing times, use of funds, and the loan amount.
In this program, the maximum loan amount is $5 million, with an SBA guarantee of up to 85% of the loan. If the amount you are asking for is higher than $350,000, you will need to put collateral. However, if you need a working capital that is less than $30,000, you are not required for collateral. The length of the loan is up to 10 years.
7(a) Small Loan
This lending program is similar to the 7(a)-loan standard, but the loan amount is limited to $350,000.
Relative to SBA loans, an express loan is a good option for a business that needs a faster turnaround, which might be up to 36 hours. The maximum loan amount is $350,000. In this case, the SBA guarantee is up to 50%.
These loans are for small businesses that are in the exporting industry. If you need additional capital to support your export sales, this option may be ideal for you.
These loans are made through the EWC (Export Assistance Center) and not by banks or lenders. For this type of financing, the SBA requires a small guarantee, but also, in this case, the SBA’s maximum guarantee is up to 90%. The maximum amount is $5 million, with a turnaround time of 5-10 business days.
This lending program is for exporters who need an immediate influx of cash to support their export operations. Unlike export working capital, the SBA response time is much quicker (24 hours), but the loan amount, in this case, is up to $500,000.
If your business expands because of export sales or foreign competition, this program is especially for you. The loans are similar to the Export loans (Express and Working Capital) in size and guarantees. In this case, the loans are up to 10 years for working capital and up to 25 years to purchase fixed assets.
Just as it sounds, the microloan program provides smaller loan amounts for small businesses with a few employees or startups. These loans are being processed by the SBA and provided by community-based organizations and nonprofit agencies. This option is excellent for entrepreneurs who are not eligible for other business loans.
This program can offer you up to $50,000 of funding. However, there are some restrictions on the way you can use the funds. You cannot purchase real estate or pay an existing debt. In case you are looking for working capital to strengthen your cash flow, buy more inventory, or expand your business, this loan can be a good fit.
If you are looking for a more significant amount than $50,000, you should check a different loan product.
An SBA 504 is a business loan guaranteed by the SBA, provided by the CDC and lenders (banks, online lenders). With this type of financing, your business must be a for-profit business. This loan is used for buying fixed assets, for example, real estate, construction equipment, software, land, vehicles, and machinery.
Like equipment financing, you need a down payment, usually about 10% of the loan amount.
With this lending program, The maximum loan amount is $5 million. For manufactures and green energy-related companies, it goes up to $5.5 million. As mentioned briefly above, borrowers need to contribute 10% of the total cost of the asset. The banks will lend 50% at their rate and terms, and the CDC will lend 40% as a second loan.
Merchant cash advance is a working capital solution that provides your business with a sum of cash in exchange for a portion of future receivables.
Invoice factoring designed to provide you with instant access to fast cash in exchange for invoices. That cash can be used for a marketing campaign or any other urgent need.
An equipment loan can help you acquire physical assets for your business with a low down payment. This alternative fits businesses that are looking to upgrade their equipment.
A business term loan provides you a sum of capital that you pay back with fixed, equal monthly payments over a set repayment period.
SBA loans are partially guaranteed by the U.S. Small Business Administration and provided by traditional banks, online lenders and credit unions.