SBA Loans: A Primer

Many people long to start a small business. Others already have been in business for some time and are considering the expansion of their venture. In both cases, these individuals have great ideas, positive motivation, and a strong desire to be successful. They believe that if they focus on their business, then they will be profitable and an important part of their community. Along the way, they may need a bit of working capital to keep their business moving forward. This is where loans can play an important role. Over and over again, small-business loans have helped people achieve their dreams. 

Small Business and the Federal Government

The federal government has long supported small businesses with helpful policies, beneficial laws, and tax advantages. Several governmental and quasi-governmental agencies exist to assist small business owners, including the Small Business Association (SBA), Chambers of Commerce, and others. Furthermore, many small banks offer SBA loans, operating under the SBA loan program rules and regulations.

SBA Loans: Three Main Points

An SBA loan is a govenment-sponsored loan that is issued by a private bank or other lender and is backed by the federal government. The SBA has several loan programs, including 7(a) loans, 504 loans, and others.

You can apply for an SBA loan through a bank, credit union, or another lending agent. The lender then applies to the SBA for a loan guarantee, which protects the lender if for some reason you default on your loan payback obligations.

The SBA mandates an unconditional personal guarantee from everyone with at least one-fifth (20%) ownership in a company. This guarantee makes you legally liable for loan repayments if your business can’t make them.

Types of Small Business Loans

Two of the most popular SBA loans are the SBA 7 and the SBA 504 loans:

  • SBA 7 loans. This is the principal lending program offered by the SBA. Loans up to $5,000,000 can be obtained for a wide variety of business needs.
  • SBA 504 loans. Loans under this program offer low-down payments and competitive fixed rates.

Other types of SBA loans include microloans, disaster relief loans, international trade loans, and more.

Benefits of SBA Loans

SBA loans carry a number of benefits that may be different than those associated with non-SBA loans offered through banks and credit unions. These benefits include highly competitive interest rates, generously long pay-back terms, and low fees. 

If your business is eligible and needs an infusion of capital, then an SBA loan may be right for you.

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