Money for Small Business | SBA Business Loans

SBA Business Loans

Those who are engaged in small business have a lifeline to hold on to in times of financial distress, or even in times when additional capital is needed for expansion purposes. Financial assistance is available for small businesses through the Small Business Administration (SBA). SBA was founded in 1953 as part of then President Dwight Eisenhower’s Small Business Act. The agency’s primary function was to provide aid, counsel, assistance and education to small business owners. The Act also ensured that small businesses would be tapped to service a certain percentage of government projects and surplus property sales.

As far as small business loans are concerned, the SBA administers three loan programs. It is the SBA’s task to draw up and implement the guidelines for the loans while external partners provide the funding for the loans. SBA loans are actually given by lenders, community development organizations and micro-lending institutions with partnership agreements with SBA. Loans are guaranteed by SBA, eliminating the lender’s risk of borrower delinquency or payment default. The guarantees are covered by federal appropriations.

SBA’s Basic 7(a) Loan Guaranty provides for small business loans for business owners who cannot get loans by themselves under current circumstances. This loan is flexible in that its proceeds can be used for any business-related concern including working capital, machinery and equipment, furniture and fixtures, land purchase, and leasehold improvements. SBA loans have maximum tenors of 10 years for working capital loans and 25 years for fixed assets loans.

Under the SBA’s Certified Development Company (CDC), which is a 504 Loan Program, long-term financing is given to small businesses for the purposes of acquiring either real estate or machinery to expand or modernize operations. SBA loans in the CDC/504 program are meant to spur economic developments within a community. These loans come with an SBA-guaranteed debenture and carry a job creation or retention requirement for community development.

Short-term SBA loans are available in the SBA’s Microloan or 7(m) Program. Small businesses can borrow up to $35,000 to be used as working capital or purchase of business-related materials. Debt repayment or real estate purchases are not acceptable usages of the loan proceeds. Aside from the provision of funding, SBA provides management and technical assistance under the 7(m) Program. Non-profit child-care centres may also seek financial assistance through this program.

In all these programs, the SBA only serves to guarantee the loans. It is usually a third party who provides the funding. Business owners who want to seek assistance from the SBA should have a very good business plan and should be able to demonstrate capacity to generate revenues to pay for the loan and sustain business operations. Information on basic eligibility requirements are available on the internet. Any business owner who intends to take out a loan should educate himself on the application procedures and the documentary requirements.

The basic consideration for the application of any loan is the soundness of a business plan and the business owner’s demonstrated capability to repay his loan obligations. Given these two pre-requisites, a business owner can attempt to get SBA loans and technical assistance to boot. You can find the SBA at www.sba.gov.

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