SBA Loans Help Small Businesses

The Small Business Administration (SBA) provides loan guarantees, and makes indirect loans to help small businesses. These loan guarantees give lenders a certain measure of security so they feel more comfortable making a business loan, which they might not have made without the loan guarantee, thus allowing many businesses to get loans that they might not have been able to obtain under normal circumstances.

There are a number of general qualifications that must be met before a business can obtain a SBA guaranteed loan. They must have some of their own money invested into the business, must have a strong business plan detailing how they will use the borrowed money and what kind of profits the borrowed money will produce, and they must have a good credit score.

The SBA has a number of loan guarantee programs for certain kinds of businesses that have restrictions on the amount that can be borrowed, with some of these programs that amount depends upon how the loan money is used, with respect the improving the community and creating jobs. Here are three of the SBAs most popular programs:

The SBA 504 Loan Program is a loan guarantee made to purchase assets, such as land and equipment. This loan is a two lender loan that is made by a bank and a Certified Development Company, with each lender sharing part of the risk, it has an upper limit of $4 million, the borrower must put up 10 percent of the loan amount, it is restricted to businesses with less than $7.5 million in hard assets, and less than $2.5 million in net income.

The 7(a) Loan Program, another SBA program, is the most widely used SBA guaranteed loan program for start-up and existing businesses with an upper limit of $5 million. This loan can be used for any general business purpose, such as working capital, equipment, and renovation or construction of business facilities, it has a loan maturity of 10 years for working capital loans and up to 25 years for assets purchased with the loan.

The 7(m) Micro Loan Program, another SBA program, is a loan program where the loan money comes from the SBA, which they then send to various nonprofit community agencies, such as Community Development Agencies, who then make the actual loans. This program provides small loans of between $5,000 to $50,000 to both small start-up and existing businesses, it can be used for a broad range of business purposes, and those receiving such loans must participate in a technical assistance program administered by the nonprofit agency providing the loan.

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