Curious About SBA Financing?
History
The Small Business Administration (SBA) was established under the 1953 Small Business Act to “aid, counsel, assist, and protect, insofar as is possible, the interests of small business concerns.” Today, the SBA continues this mission by helping small businesses gain access to capital through its 7(a) and 504 loan programs.
These programs offer alternative financing options for small businesses that may not qualify for traditional loans. To be eligible, businesses must be based in the U.S., operate for-profit, and demonstrate a clear need for SBA financial assistance. Small businesses apply for SBA loans through approved lenders, such as banks and credit unions. The SBA provides a loan guarantee to the lender, which enables them to offer financing to businesses that might not otherwise meet the criteria for conventional loans.
7(a) Loans
The SBA 7(a) Loan Program is considered the "bread and butter" of SBA financing, offering flexible and accessible funding for small businesses. Loans can be secured for up to $5 million and can be used for a variety of purposes, including acquiring a business, purchasing real estate and equipment, funding working capital, lines of credit, or refinancing debt.
Depending on the specific use of funds, 7(a) loans offer terms ranging from 7 to 25 years, with no balloon payments or demand features. A 10% down payment is required for most loan uses, but lower down payment options may be available in certain situations. The flexibility of the 7(a) program, combined with its competitive interest rates and favorable repayment terms, makes it an ideal choice for small businesses looking to expand, invest in equipment, or improve cash flow.
504 Loans
The SBA 504 Loan Program is designed to help small businesses acquire real estate or equipment. Funds can be used to purchase new property or equipment, or refinance existing debt related to property acquisition. The program typically involves two lenders: a Certified Development Company (CDC), which provides 50% of the financing, and a bank or credit union, which covers up to 40%. The borrower is required to contribute at least 10% as a down payment.
The SBA 504 loan offers long-term, fixed-rate financing with terms of 10, 20, or 25 years, which helps businesses manage their cash flow and plan for long-term growth. Loan amounts are available up to $5.5 million. The 504 Program is an attractive option for small businesses seeking real estate financing with low down payment requirements and competitive interest rates.
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