Significance of Business SBA 7A Loan and Business SBA 504 Loan for Start-ups and Small Businesses
When you are looking for a loan to facilitate funding of your start up or small business, U.S. Small Business Administration (SBA) can be an ideal source of getting required financial assistance. The federal government is engaged in encouraging the growth of small business. Many SBA loans are of smaller sums ideal for small businesses. However, SBA doesn’t actually make direct loans. But, it provides loan guarantees to the entrepreneurs, so the bank will pay back a certain percentage of your loan if you are unable to repay it.
SBA programs are designed to help entrepreneurs in preparing loan package, which will be then submitted to the bank. If the bank approves your loan, it submits the loan packages to the SBA. Bank act as regular, certified or preferred lender in the SBA program. When it act as regular lender, the application will be reviewed by SBA in an average of two weeks, certified lender applications are reviewed in three days, and approval through preferred lenders is even faster. The basic requirement to avail SBA loan is to have ability to pay back loan from cash flow, apart from credit history, industry experience or other evidence of management ability, collateral and owner’s equity contributions. These loans significantly helps in building business ventures and help small businesses to grow and expand themselves to newer regions and explore newer possibilities.
The primary and the most significant SBA program for small businesses is Business SBA 7a Loan Program. In this program, SBA provides maximum loan guarantee of up to $5 million or 75 percent of the total loan amount, whichever is less.
If the amount of loan is less than $150,000, the maximum guarantee is 85 percent of the total loan amount. Also, it is worth to note that SBA also prohibits lenders from charging many of the usual fees associated with commercial loans. However, you may need to pay a onetime guarantee fee to the bank. Business SBA 7a Loan can be availed for many different purposes such as real estate, expansion, equipment, working capital and inventory. Long terms loan for real estate and equipment can last up to 25 years and 10 years for working capital. Interest rates vary with the type of loan you apply for.
Business SBA 504 Loan is another great alternative for businesses willing to invest in equipment and looking for long term loans. The loan amount go up to $5.5 million, provided for buying real estate or equipment. It has long repayment period that can be either 10 or 20 years. If you are looking to get business SBA 504 loan, following is the eligibility criteria to avail it
- The business must be a for-profit company having a net worth less than $15 million.
- It should have an average income less than $5 million, after deduction taxes, for the past two years.
- It should have ability to repay loan on time with business income.
Business SBA 504 Loan is a smart choice for small businesses or small companies. These loans cover up to 90 percent of the total cost of a project. It allows small business to make substantial purchases of real estate and equipment, where lender covers 50 percent of the cost, while the SBA will cover 40 percent, and the business will be responsible for the remaining 10 percent of the total cost. Fixed interest rate is one of the major benefits of SBA programs for small businesses, it means that the amount of interest will be same during the loan repayment period that usually spans 10 to 20 years. As a portion of loan is guaranteed by SBA, it is much reliable option for lenders.
Commercial funding is a daunting task, however, by getting acquainted with proper resources, you can explore the best options to fulfill your commercial funding needs. There also many financial companies helping businesses to avail commercial loan through various sources. One should look for reputed and renowned commercial funding companies to get right guidance and assistance for commercial loans.