Small Business Administration or also shortly known as SBA loans was a method of loaning out money to help the Americans for stating, building and growing their businesses, which was started back in 1953. SBA partners, being an independent agency for the government of not only public but also of private organization, seek to deliver their services to the people in need in form of loans.
You need to understand first hand that SBA loan is actually
not a form of direct loan from SBA but instead is a type of loan that has been
issued from a commercial leading partner who have received the guarantee from
SBA. In addition to guarantee, these commercial partners are also structured in
accordance to the requirements set by SBA. This is done in order to minimize
the risk involved for not only the partners but also for the borrowers. The loan
is only given to those who do not have access to another form of reasonable funding.
Due to the guarantee requirements as well as the practices regarding
the loans are directly dependent upon the situation of US government; the
lending terms for these loans may also change in regard to the changing
economic conditions as well as the government policies.
Only those who are a part of the following US territories
are eligible to apply for this SBA loan.
US Virgin Islands
Types of Loans
offered under SBA Program:-
Under the SBA loan program, borrowers are offered a variety
of different types of loans which are divided mainly into following 4 types.
General Small Business Loans
Real Estate & Equipment Loans
It is not a brainier that each type of the above stated loans
is applied through its very own terms as well as an individual application
form. For those who do not go down the lane of “Debt Financing”, they can take
up some of the following other SBA offers.
Surety Bonds Program
Venture Capital Program
Still, SBA does not offer grants to people to start their
business but some of these government gnats are provided to the non-commercial organizations
like the following.
Non Profit Organizations (NGOs)
Uses of an SBA
If a person has decided that SBA loan is the best option to
either start or grow their business then the next step in their course of
action is to come with a plan to use the loan in right manner.
A person must need to know as to how much money they want
for their business and how much will suffice to achieve the goals they intended
for their business.
We have outlined few of the things a person can use the SBA
loans for as follows.
For purchasing a
business or in order to expand your existing business
For purchase of a commercial real estate such as
buildings and lands
For making new constructions or making
improvements to the already existing buildings
For the purchase of either new or the used machinery,
supplies, equipment etc
For development of a new business if a person has
just started their business
In order to have capital of either long term basis
or short term basis or for the debt consolidation
A note to pay heed to; each of these loan categories come
with their own terms and requirements along with a down payment which is also
varied. Lastly different policies are also related to the interest rates as a
form of collateral.
For a person who is in need of a loan due to an unforeseen
circumstance, let’s say some natural disaster, then the person in question can
seek out a Disaster Loan for the following uses.
In order to either replace or repair their home
and their personal property (mainly home owners along with tenants are eligible
for this loan type)
For the replacement or repairing of the business
In order to sustain an Economic Injury related
Military reservists with an economic injury
Type of SBA Loan
Best suited for your needs:-
In our previous description, we have clearly outlined all
the four main general types of SBA Loans. It is recommended for a person
seeking out the SBA loan to familiarize himself with all the different options before
even applying for a loan. Below we will present an in-depth review of all the available
loan types under the program of SBA Loan.
General Small Business Loans 7(a):-
The General Small Business Loans or also more commonly known
as the 7(a) loan, is the most common type of loans that the Americans opt for
under SBA loan program. The reason is that it covers a wide range of business
needs such as the followings.
Purchase of commercial property
Purchase of equipment
For he payment of numerous business operational
In addition to the above stated uses for this loan type,
there are also a number of other following uses especially for this type of loan.
Export and import needs for business
Needs of rural business
Needs for short term business capitals
For those who are already operating a business they are only eligible to apply for
this loan if their business is already for basis of profit and their net worth
does not exceed a sum of 15 million dollars or their net income has not exceeded
a sum of 2 million dollars for the last 2 years.
For those who have a rural business, they are best suited to
take a look at these following loans.
SBA Export Loan Program
Rural Business Loans
Community Advantage Loans
Terms of repayments,
total loan amount, fees as well as interest rates for the loans:
The terms of repayment for the General 7(a) loan include the
The maximum sum of money that can be taken as a loan under
General 7(a) loan is about 5 million dollars. As for a minimum amount limit,
there is none.
As for the fee, all of the SBA loans are to have a guarantee
fee that is based on the following factors.
Maturity date of Loan
Dollar amount which has not been guaranteed
Lender has the option to either pay this guarantee fee in
the start or later as well as pass it to borrower.
The interest rates related to the General 7(a) loan are set
by both the SBA and the partner that lends the loan. These rates are divided
into two following parts.
The base rate is further decided in following three ways.
A Prime rate that is already published in a
Daily national Newspaper
London Interbank One Month Prime plus 3%
SBA Peg Rate
As for the allowable spread, it is added by lenders to the base
rate which arrives after the final interest rate. As for the capping of these
rates, they are made by SBA as follows.
Loans which have a maturity date of fewer than 7
years, they are allowed a maximum spread of nearly 2.25 percent
Loans with a maturity date of more than 7 years
can have a maximum spread of nearly 2.75 percent
Loans which have been either processed through
the express procedures or have a sum of fewer than 50000 dollars,, they can
have a high rate
Many small businesses often opt to this type of SBA loan program.
This mainly includes Non Profit child care centers and the loan issued is no
more than for a sum of 50000 dollars.
Microloans are often issued to help a person either start or
to make expansion to their business.
Some uses of Microloans are as follows.
To purchase furniture, equipment, fixture and
For purchase of supplies and inventory
A Working capital
repayments, total loan amount, fees as well as interest rates for the loans:
The thing to note here is that these microloans are not
intended for the repayment of other debts neither are they are for the purchase
of the real estate.
Although these Microloans are issued by the specific intermediary
lenders, the funds of these loans are issued by SBA themselves.
As for the interest rates of the Microloans, they are also
set by these intermediary lenders. The general interest rate lies somewhere in
between 8 to 13 percent.
The terms of repayments for Microloans are dependent upon
A planned usage of the loan
The amount of loan
Requirements set by the lender
Need of the business owner
One other thing to remember regarding these Microloans is
that every lender for these loans requires some credit as well as a type of collateral
and a personal guarantee of the small business owner.
Real Estate & Equipment Loans: CDC/504:-
This loan type, as it sounds is intended for the person with
following intentions to use it.
For the purchase of real estate or the purchase
of the equipment
Making improvements on the real estate or the commercial
Conversion or renovation of the already existent
CDC in this loan is meant for “Certified Development
For those who seek to apply for the CDC/504 loan, they need
to have following.
It is to be mentioned here that the CDC/504 loan cannot be
applied for the following reasons.
For the purchase of an inventory
For working capital
For repayment of a debt
repayments, total loan amount, fees as well as interest rates for the loans:
The repayment terms of this loan can vary in between a
period of 10 to 20 years.
As for the interest rates, they are fixed by the SBA on the basis
of an increment of the current market for either 5 years of 10 years which the
US Treasury issues.
The guarantee fee for this loan type is about 3 percent of
the actual loan amount and is to be financed with the loan.
Disaster loans are the ones with lowest interest rates and
can be applied by business of all sizes as well as types. Even homeowners and tenants
can apply for these loans.
The primary target for these loans must be for repairing or replacing
either the damaged or the destroyed items that occurred during a declared Natural
disaster. Items that are eligible for replacement or repairing under the Disaster
loans category are as follows.
Types of Disaster loans:-
There are following four main types of disaster loans.
Home & Personal
A person may apply for a maximum sum of 20000 dollars
for repairing or replacing their residence. It is not be used for upgrading.
Homeowner or tenants can apply for a sum of
maximum 40000 dollars for repairing or replacing the personal property which
got damaged or destroyed during a disaster.
Business Physical Disaster:
A person can apply for a sum of 2 million dollar max for
replacing or repairing the following items.
A person can apply for a sum of maximum 2 million dollars
for keeping up with the operational expenses as well as the financial obligations
reservists Economic Injury:
A person can apply for a sum of maximum 2
million dollars in order for a small business to keep up with all types of operating
expenses which could have occurred if the employee has not been called for an
active military duty for being a military reservist.
Types of natural
Natural disasters are the following events which are
applicable to applying for the Disaster loans.
The repayment terms are determined by the circumstances of
each individual person under the above stated Disaster Loan categories.