Why Use SBA Loans for your Business?
Small business administration or SBA Loans can be a viable tool for any small business seeking financial assistance. Because of how these loans are set up and the variety of loan types available you may find that once your business qualifies they are easier to obtain and use for your company than some other options. Keep reading to learn more.
How SBA Loans Work
The SBA is not a lending institution. Therefore instead of issuing loans in guarantees them. This means a qualifying small business owner can go to a local bank or lending institution to apply for the loan with them. Because the SBA has guaranteed the loan, the bank or institution assumes less risk than they might with other loan types. This may allow them to offer loan programs with more flexible terms and allow the business owner to get the funding they need.
There are several SBA Loans available. Each has been designed with a different purpose and depending on your businesses needs you may find that one type is a better fit than the others. The Basic 7(a) Loan Guaranty is probably the most well-known of the programs offered by the SBA. this type of loan can be guaranteed for a variety of business needs making it the most flexible of the loan options offered. For example a 7(a) loan can be used as working capital, to purchase or fix machinery, or make improvements.
7(m) SBA micro loans are a form of short term loans available to qualifying small businesses. This loan type cannot be used for debt repayment or real estate investment, but may be used to acquire inventory, machinery, or office needs.
If your business is looking to acquire machinery, equipment or real estate the SBA 504 loan program may be the right fit. This loan usually requires around ten-percent equity from the party requesting the loan, while around half of the amount comes from a lending institution. The SBA then guarantees the rest of the loan through a certified development company (CDC). The CDC may hold a second lien against the equipment or real estate the loan will be used to acquire.
Each of the SBA Loans available is designed for a specific purpose allowing you to find the right fit for your company. These loans are guaranteed by the SBA meaning that your lending institution is assuming less risk by lending to you via this loan type. This may mean that your terms are more flexible both in repayment and in what you can do with the funding. If you have more questions a financial adviser may be able to help.