Benefits of Using SBA Loans as Finance for Small Business
SBA plays a vital role in extending a lending hand to small business, so that they get access to capital by backing loans executed through a nationwide network of lenders. In order to obtain SBA loans, it is essential to approach U.S. Small Business Administration (SBA). Its mission is to ensure development of small businesses. It comes up with varied educational and support programs to help small business. It is important to notice that SBA does not provide Small Business Loans USA on itself, but provide guarantee to the lenders for bank loans on behalf of small business owners. There are usually three kinds of SBA loans used as Finance for Small Business USA:
- SBA 7(a) loan, for as high as $5.5 million in cash with terms up to seven years
- CDC/504 loans provided for specific purposes like real estate and machinery with terms up to 25 years
- SBA microloans for a max of $50,000. These loans can be repaid for up to six years
SBA makes it less risky for Small Business Lenders to finance small business owners by providing guarantee to pay their loan. In its SBA 7(a) loan program, the government guarantees85 percent of loans less than $150,000 and 75 percent for loans greater than that amount. Many lenders use SBA 7(a) program, while other prefer to use SBA 504 loan.
SBA 504 loan program can provide up to 90 percent financing on a business’ real estate and/or equipment. It is offered in terms of first and second mortgage, where the lender holds the first mortgage at 50 percent of the loan amount, and the SBA actas a lender for an additional 40 percent of the loan amount. In this way, borrower needs to pay only 10% of total loan amount and it provides great aid to small business owner. These percentage may vary as per the type of loans.
- SBA loan programs to provide Small Business Loans USA have lower interest rates than other commercial financing options and hence they cost you cheaper in the long run. It may let you get loan at interest as low as 6.75% on an SBA 7(a) loan. On the other hand, non SBA loans will charge you higher rate interest on the amount of loan.
- SBA loans allow borrowers to avail up to $5.5 million,so it makes it possible for small business owners to get a huge sum of capital to finance small business
- As SBA works with lenders to guarantee up to 85% of loans in case of borrower default, banks and Small Business Lenders USA feel more secure in providing loan through it. It means easy availability of more capital for the borrower.
- If the repayment terms stress you in the future, loan won’t prove to be helpful tool for financing your business. So, it is important to look for loan products with feasible terms and conditions. SBA loans have longest repayment terms and hence payment schedule won’t put financial stress on your business. Most small business lenders offer shorter payment terms. Sometimes you need to make repayment in as few as three months.
- When you avail small business loans through a lender, you generally need to make down paymentthat usually depends on the amount of the loan, the purpose of the loan and what kind it is, and your own financial status and stability. For instance, when your creditworthiness is poor, you will need to pay higherdown payment. On the contrary, SBA loans have down paymentlower than many other types of loans. Mostly borrower need to pay only need a 10%-20% down payment for an SBA 7(a) loan or a CDC/504 loan. Besides, there is now down payment required in SBA microloan.
- SBA loans give you flexibility to use funds in your business to fiancé anything from equipment to inventory and refinancing existing debt. However, CDC/504are not as flexible as SBA (7A) loans.
- The SBA essentially helps businessowners to grow their business in a hassle free manner by providing Finance For Small Business and educational resources. You can take advantage of resources and SBA hosts programs for small businesses.
In this way, SBA loans assures interest at competitive rates, longer repayment terms, access to significant amount of capital, and a great network of resources, so that small business owners can avail loan and grow and expand their business and take it to the next level.