Benefits & Significance of SBA Loans for Small Businesses
Established in 1953 as a government agency, Small Business administration (SBA) is engaged in providing a variety of loan products to support small businesses in the US. It provides loan guarantee to the lenders, so they can lend money to small business owners encouraging them to take a risk on a smaller business.These loans come with a very low interest rates and easy repayment terms specifically attractive to small business owners who find it tough to get reasonable terms elsewhere. However, there is no loan suitable for all purposes and situations. SBA loans usually take time in completion of formalities and funding. If you need quick cash, you should look for other alternatives for small business owners offered by private lenders.
Business SBA 7a Loan and business SBA 504 Loan are among the most popular program to provide support to the small business. If you are looking to open a store at a new location, hire new employees or refinance an existing loan, SBA loans are great choice for its interest rates and terms are much more manageable than all other types of financing. However, it is not easy to get qualified for an SBA loan. A business must meet the size requirements and industry requirements to get eligible for the loan. It is important that they must be doing reasonable well and have ability to invest minimum 10% of equity. They should have also tried other financial resources before applying for SBA loan.
Business SBA 7A loan program
Business SBA 7A loan program is provided for buying new land, repairing capital assets, expanding existing business and refinancing existing debt. It is also used for providing working capital and purchase of machinery, furniture, fixtures, supplies or materials. During SBA loan program, the borrower is able to get up to 90% of loan from the bank where SBA guarantees 75% of the loan amount, so that a large portion of the principal will be repaid by SBAif the loan goes into default.
Benefits of the Business SBA 7A loan Program
- Lower interest Flexible structure
- Better repayment terms varying from 5 to 25 years : 5 to 7 year term for working capital and up to 10 years for business acquisition or equipment financing
- Up to 90% financing
- Specialized programs available for exporting; underserved communities; military and working capital needs
Business SBA 504 loan
The businessSBA 504 loan is loan program for providing support to the small businesses for promoting business growth and job creation. It is available through certified development companies and participating lenders to provide financing to small businesses. As per the program, a business seeking loan must typically create or retain one job for every $65,000 in funds guaranteed by the SBA.
Benefits of the business SBA 504 loan
- Flexible structure
- Up to 90% financing
- Lower down payment
- Lower monthly payments
- Competitive fixed rate for 20 years on the SBA portion of the loan
- Loan terms of 10 or 20 years available
- 10 years for fixed assets / equipment
- 20 years for real estate
- Federally guaranteed loans of up to $5 million
- Funds for buying land, machinery, facilities
- Processed through private-sector lenders and non-profits
SBA loans often require personal guarantee of the business owners having more than 20% interest in the business. There is also many formalities and documentation involved in than traditional lenders as these loans are backed by the US government. The process usually takes much time varying from 45 to 90 days.
An SBA loan application is required to approved and underwritten by small business lender prior to being sent to the SBA for underwriting and approval. If it is approved by both organisations, then only lender or financial institution will service the loans. It is always better to seek guidance from commercial financing companies ro choose the right loan product for financing your small business. Nowadays, there are many commercial financing companies engaged in providing complete assistance to businesses and individuals seeking loans for small business. One should do some extensive research and consider all the factors to choose the most viable option in terms of cost of loan, interest rates, and time duration and repayment terms to reap maximum benefits out of it.