Small Business Loan Advisor

The 7(a) loan program is the flagship program of the SBA. This program is the most common and most business owners will qualify for a 7(a) SBA loan rather than other types of loans. The 7(a) SBA loan is a term loan that is federally guaranteed up to 5 million dollars. This loan is attractive because of the low-interest rates and is federally backed. Interest rates for a 7(a) loan start at a fixed rate of:

• 7.5% - 8% for loans that total $25,000 or less

• 6.5% - 7% for loans that total $25,001 - $50,000

• 5.5% - 6% for loans that total more than $50,000

Typically, these loans are used to fund the expansion of the business, asset and equipment purchases, and working capital. Another perk of this loan program is that the terms of an SBA approved loan are much longer than a private business loan. The terms of repayment are based on what you use the funds for, the terms are:

• 7 years for funds used for operations and working capital

• 10 years for funds used for equipment purchases

• 25 years for real estate funding

These loans are processed directly by credit unions, banks, and specialized lenders.

504 loans are specific in that they must be used for different purposes than a 7(a) loan and are also federally guaranteed up to 5 million dollars. The 504 loan program is a development loan program that promotes business growth and the creation of jobs. This loan is available from Certified Development Companies, who have an interest in the economic growth of a particular community. The funds from this loan are typically used to buy land, facilities, and machinery. The funds must be used on fixed assets such as:

• Buying existing buildings

• Buying land or improving existing land

• Construction of new property or renovating current property

• Buying long term machines

• Refinancing debt for fixed assets

You can qualify for the loan through nonprofit organizations or private sector lenders. To be eligible, the small business must fall under these guidelines:

• The business has a net worth less than 15 million dollars

• Net income of less than 5 million dollars after taxes for the previous 2 years before the application

• Must be a for-profit company

• Must meet size standards of the SBA

Because this loan is more for specific industries, you need a qualified attorney to look through your paperwork to make sure that you qualify for this loan.

Microloans are different from a 7(a) loan in that the sums of the loan approved are much less. Still, approved loans can be as much $50,000 and can significantly impact the health of your business. These funds can be used similarly as a 7(a) loan and the loan can fund necessary equipment, inventory, working capital and help start your business. However, microloans may not be used to pay debt or purchase certain property like real estate. To be eligible for a microloan you must meet these requirements:

• Collateral to put against the microloan

• Business owner’s personal guarantee of repayment

Microloans are typically processed by community-based nonprofit organizations. And repayment, interest rates, and fees depend on:

• The use of funds

• The amount loaned

• Specific requirements of the lender

• The capacity of the borrower to repay