Amounts and Financing: There's a reason this loan is called "micro": Your small business can only borrow up to $35,000. Most loans are about $13,000, according to the SBA. Financing terms usually run between 8 percent and 13 percent. The intermediary must provide you with training and assistance after receiving the loan, and you may have to go through training in order to apply. The SBA doesn't guarantee the loan. You will probably have to make a personal guarantee on the SBA loan, although this is up to the intermediary.
Length of Loan: Maximum six years.
Qualifications and Restrictions: All new for-profit businesses can apply for a microloan. Nonprofit child care centers also qualify. Loans may be used only for working capital and acquisition of materials, supplies, furniture, fixtures, and equipment. Loans can not be made to acquire land or property.
SBA 504 Loans
Overview: Officially named the CDC/504 loan program, this financing is available for small businesses wanting to make larger fixed purchases such as real estate or equipment. The SBA 504 loan offers more competitive rates than other SBA-backed loans, and the financing is slightly more complicated.
Amounts and Financing: Small businesses can borrow up to $2 million if the funds are used to meet public policy goals, such as minority business development or business district revitalization. Loans of up to $1.5 million are available for businesses as long as they meet community development goals, which could include creating one job for every $50,000 of the loan. Small manufacturers can qualify for up to $4 million and must create or retain at least one job for every $100,000 that is borrowed.
You should apply for the loan directly with a lender, who will then pass your application on to the SBA. The lender will provide up to 50 percent of the funds, while a certified development company, backed by a 100 percent SBA-guaranteed debenture, will cover up to 40 percent of the loan. You will be responsible for at least 10 percent, and a personal guarantee is required. Fees are approximately 3 percent and can be financed with the loan.
Use of Loan: 504 loans are exclusively for fixed-asset projects such as purchasing land and improvements, including buildings, utilities, parking lots and landscaping; building new facilities or modernizing existing facilities; and buying machinery and equipment. They cannot be applied to refinancing, repaying debt, working capital or inventory.
Length of Loan: 10 and 20 year loans are available at competitive fixed rates.
Qualifications and Restrictions: Businesses must be for-profit enterprises operating within the United States or its territories. Rental real estate and speculation-based businesses do not qualify. Tangible net worth must be under $7.5 million. Net income cannot exceed $2.5 million after taxes.
Tiare Rath is a freelance journalist and a former personal finance columnist for MarketWatch.com.
