SBA Loans
Federally Backed Loans
Sometimes, small businesses need a boost and the Small Business Administration was formed to do just that. Both short-term and long-term SBA loans exist and can be used for real estate, equipment, and working capital.
Overview
The SBA offers a number of financial incentives to grow jobs in the small business sector. Depending on the type of loan you want, you’ll have to meet different qualifications to be approved. Two of the SBA’s main offerings are the SBA 504 loan and the SBA 7(a) loan. Each has a different purpose and its own terms.
SBA 504 loans are strictly for real estate expenses like buying a new property, renovating an existing building, or new construction. These loans are serviced through a Certified Development Company, or CDC, that operates in the borrower’s local area. Funding typically consists of 40% from the SBA itself, 50% from a private lender, and a 10% down payment from the borrower.
SBA 7(a) loans are more flexible in that they allow funds to go to real estate, equipment, or working capital. Terms are 25 years for real estate, 10 years for equipment, and 7 years for working capital. These loans are normally serviced through a private lender.
Loan Highlights
Women-owned and minority-owned businesses have an approval advantage.
Both SBA loans are capped at $5 million.
These loans are only for for-profit businesses whose net worth is $15 million or less.
Certain business types are excluded, like religious organizations, banks, and casinos.
Pros
Financing can be up to 90% of the project cost.
SBA 504 loans have fixed interest rates and don’t require collateral.
SBA 7(a) loans can be used for multiple purposes.
Neither loan type requires a balloon payment.
Cons
No major stakeholders in the business can be on parole or convicted of a felony.
SBA loans are designed to be the last financing option, not the first.
A business must have a good credit history to qualify.
The loan application process can be complicated.
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