A knowledge of SBA loan types can be one of the most valuable tools in a small business owner’s toolbelt. One of the greatest challenges of running a small business and either getting it off the ground or expanding is how to find the funds needed to accomplish that next step. Unfortunately, building a strong and profitable business can often be one of those things that can get worse before it gets better, at least financially. However, if you’re willing to do some research and legwork, that phase can be less financially straining than you might fear.
The Three Main Types
The U.S. Small Business Association helps banks out by guaranteeing a portion of the funds lent, which means that the financial history check is a bit laxer than a traditional bank loan. However, there are specific types of loans for specific purposes, so you’ll need to know which one you’re applying for before you start the process.
- Microloans: This is the best type of loan if you need a small infusion of funds. They’re typically offered for between $10,000 and $50,000 and are relatively easy to get, as they’re designed for applicants who haven’t started to turn a profit or don’t have much to offer for collateral.
- 7(a) loans: This loan type, which can go up to $5 million, is the most similar to a standard bank loan. Your credit score and financial history will affect your interest loans, but typically the terms are pretty favorable to the borrower.
- 504 loans: These are the largest of the three main loan types, and are limited to the purchase or renovation of fixed assets like real estate or machinery. These do vary a bit, in that you are required to contribute 10% of the loan value as a down payment. The interest rates tend to be on the lower side but do depend on the bank that’s providing the bulk of the funds. The repayment term is long, though, at up to 25 years.
How to Get One
If you’ve identified which SBA loan is best for you and your business, your next step is to find a lender. The best place to start is with your regular bank, which should be able to point you in the right direction if they don’t offer these loans themselves. As mentioned though, be ready for some work – applications for these loans are notoriously long and demanding. That said, they can be just the right boost your business needs.