Obtaining financing for your business venture is often challenging for an entrepreneur. In addition, SBA offers no grants to start or expand a business. From being in the startup phase to growing your business, you may face difficulties with the requirements of traditional bank loans. The 7(a) Program may be able to help.
Am I eligible? To be considered eligible for the SBA 7(a) Loan Program, your business must meet SBA's size standards and be considered small within your particular industry, operate for profit and you must have reasonable equity to invest.
How can I use 7(a) funds? The 7(a) Program lets you secure loan amounts up to $5 million to fund startup costs, buy equipment and more.
What are the benefits? The 7(a) Program offers flexibility, longer terms and potentially lower down payments compared to other financing options. There are specialized programs for individuals interested in exporting; those located in underserved communities; members of the military community; and small businesses owners looking to meet their short-term and cyclical working capital needs.
What are the repayment terms? Most 7(a) term loans are repaid with monthly payments of principal and interest.
What else should I know? Keep in mind that SBA doesn't fund these loans directly to small business owners, but banks receive a guarantee that the SBA will repay a portion of the loan after all collateral has been liquidated if you default on payments.
The 7(a) loan program, SBA’s primary business loan program, provides a loan guarantee to lenders that allow them to provide financial help for small businesses with special requirements. 7(a) loans can be used for:
The maximum loan amount for a 7(a) loan is $5 million. Key eligibility factors are based on what the business does to receive its income, its credit history, and where the business operates. Your lender will help you figure out which type of loan is best suited for your needs. This also includes recommending you for an SBA 7(a) Working Capital Pilot (WCP) loan, if your business qualifies.
To be eligible for a 7(a) loan, a business must:
Visit https://www.sba.gov/loans/7a-loans/ for more details involving size, eligibility, use of proceeds, guaranty percentage, fees, and other questions.
The 504 loan program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation.
Certified Development Companies (CDCs) are authorized by SBA to originate in collaboration with a senior lender a 504 loan, SBA’s community-based nonprofit partners who promote economic development within their communities. CDCs are certified and regulated by SBA. The maximum loan amount for a 504 loan is $5.5 million.
Example Loan Structure for $2 Million Project:
Bank Loan (1 st Lien) $1,000,000 (50%)
SBA/CDC (2nd Lien) $ 800,000 (40%)
Borrower $ 200,000 (10%)
Total Project $2,000,000 (100%)
Before you start applying for a loan, you should get some basic documentation together. The following are a few typical items that will be required for any small business loan application:
* Your cash to invest
* Business Plan with Cash Flow Projections
* Personal Financial Statement
* Personal and Business Credit Report
* Personal and Income Tax Returns
* Financial Statements-P&L, Balance Sheet, Income Statements
* Bank Statements