The Small Business Administration helps facilitate loans for small businesses, but it doesn't give grants, nor does it issue startup SBA loans directly. Instead, the SBA acts as a guarantor for small businesses borrowing from traditional lenders. If you think you might need a backer to secure funding, startup SBA loan programs could help your small business find its footing.
The following are three popular programs for small businesses seeking startup SBA loans.
Overview: SBA’s 7(a) loan is the agency's most popular and flexible SBA loan program. It is available for small businesses that may not otherwise qualify for financing through banks or lenders such as credit unions.
You will first need to apply for a loan. The lender will determine if you need the SBA guarantee, at which point the SBA will review your loan and decide whether to act as a guarantor. This will largely be based on your cash flow. The higher your business' cash flow, the better your chances are to secure a loan and obtain the SBA's backing.The SBA requires all parties with at least 20 percent ownership in the business to personally guarantee the loan. You may also have to put up your personal property as collateral to secure the SBA loan. As is the case when seeking any type of financing, the lending institution is the ultimate arbiter as to whether you are a good risk and is under no obligation to you or the SBA to grant you an SBA-guaranteed loan.
Amounts and Financing: You can secure up to $2 million under the 7(a) loan program, and the SBA will guarantee as much as $1.5 million of the total amount. The agency can guarantee up to 85 percent of a loan, although loans larger than $150,000 are guaranteed up to 75 percent. The SBA has interest rate caps that vary depending on the size and length of the loan, and you also will have to pay fees.
Use of Loan: The SBA loan can be used for working capital, machinery and equipment, furniture and fixtures, land and building, leasehold improvements and, in some cases, debt refinancing.
Length of Loan: Up to 10 years for working capital and 25 years for fixed assets.
Qualifications and Restrictions: You must run a for-profit business in the United States or its territories that has some equity from the owners, who must have already invested personal assets in the business. Franchises, recreational facilities and clubs, medical facilities, fishing vessels, and agricultural businesses may not be eligible. Manufacturing companies generally can't have more than 500 or 1,000 employees. The limit on wholesale businesses is 100 employees. Revenue requirements vary widely, from about $750,000 to approximately $25 million.
Overview: Obtaining loans through traditional lenders can be difficult for new businesses -- even if they have the SBA's backing -- because lenders prefer to loan to businesses with established financial histories. By avoiding traditional lenders, microloans are designed for new businesses seeking startup SBA backing. They also can be used for small businesses that want to grow. Microloans are funded by the SBA and administered through nonprofit intermediaries. Check with your local SBA office about changes in the SBA microloan program as of 2008.