When most people think of Small Business Administration (SBA) loans, it is the 7(a) General Small Business Loan that comes to mind. SBA loans are well known for helping to get a small business off the ground or providing funding for an expansion. However, the SBA actually offers a variety of business loans geared toward assisting U.S. businesses with a wide range of needs.
Types of SBA Loans
Determining your eligibility for SBA loans and which type of loan is appropriate to your circumstances can be complicated. This general overview of loan types will serve as a starting point, but an attorney experienced in securing SBA loans can provide more detailed guidance to ensure that you are pursuing the most beneficial option and maximize your chances of obtaining the loan.
7(a) General Small Business Loans
An SBA General Small Business Loan can be used for a variety of purposes, including long-term or short-term operating expenses, purchase of equipment or real estate, construction,or renovation. Under some circumstances, a General Small Business Loan may even be used to refinance existing business debt.
Not every business, however, is eligible for a 7(a) loan. First, the business must meet the specific size requirements for its classification. Then, the business must meet other criteria, such as:
- Be a for-profit business
- Do business within the U.S. or its territories
- Have adequate investment from owners and other sources
Certain types of businesses are either ineligible or are eligible only under specific circumstances or for certain types of funding.
CDC/504 Real Estate and Equipment Loans
Although a 7(a) General Small Business Loan can sometimes be used to fund real estate or equipment, the CDC/504 loan is specifically for that purpose. In fact, the 504 loan is restricted to a handful of specific uses:
- The purchase of buildings and land
- Improvements to real estate
- Real estate construction or renovation
- The purchase of machinery and equipment
The business’s ability to repay is also a significant factor, and the analysis includes not only the payment history of the business but also that of the principles.
SBA Microloans are intended specifically to help small businesses start up or expand. Unlike other types of SBA loans, these loans are available to certain non-profit child care centers as well as for-profit businesses. Microloans can be used for working capital, inventory, supplies, equipment, and furniture or fixtures. The maximum microloan amount is $50,000.
Disaster loans are the most broadly available of the SBA loans, in that private for-profit businesses and even individuals may be eligible. The loans may be used to repair or replace:
- Real estate
- Personal property
- Business assets
Although every business owner hopes this type of loan will never be necessary, emergency financing after a flood, hurricane or other disaster can mean the difference between saving a business and seeing everything lost.
SBA Loan Terms
Some elements of an SBA loan are fixed. For example, the maximum General Business Loan amount is $5 million, and the guarantee fee associated with that type of loan is a fixed percentage based on the amount of the loan. However, many terms of an SBA loan are negotiated between the lender and the borrower, including the interest rate and the repayment period.
In part, those terms will be dictated by the particular SBA loan provider you choose to work with. However, there is usually room for negotiation, particularly for strong borrowers.
Talk to an Experienced SBA Loan Attorney
Finding the right financing for your start-up, expansion, to fill a gap in operating expenses or to recover after a disaster can mean the difference between success and failure. Of course, you want to give your business the best possible chance of success.
Our experienced business financing attorneys have the knowledge to assist you with every stage of the process, including:
- Assessing your eligibility for an SBA loan
- Helping to determine which loan would be most appropriate for your needs
- Putting together the required documentation to help you qualify for the loan
- Negotiating loan terms on your behalf
- Reviewing loan agreements and advising you
Whether you are seeking funds for planned growth or attempting to bridge an unexpected disruption in revenues, obtaining the right loan on favorable terms can provide the stability you need to keep your business moving forward.