Defining SBA Loans
An SBA loan, contrary to what the name might suggest, is not a loan from the SBA directly. Rather, what you get with an SBA loan is a more traditional loan but one that is partially backed by the government. For instance, let’s say you go to a bank to get a $50,000 loan. If it is an SBA loan, up to perhaps $40,000 of that may be guaranteed by the SBA. Meaning, if you don’t pay or for some reason end up defaulting, then the financial institution will have recourse regarding recovering their losses.
When it comes to loans for a smaller business, lenders are often hard-pressed to qualify the borrower in question. Whether the company is relatively new, doesn’t have enough revenue, or for any number of reasons, they don’t make the best candidates when it comes to business loans. Enter, the SBA. Their guarantee helps make funding a possibility for more small business owners.
The SBA’s Funding Programs
7(a) Loans
7(a) loans tend to be the most common within the SBA family of loans. With access to up to $5 million in working capital for a term of 25 years, numerous industries find that these types of loans are undoubtedly adequate for their needs. Interest rates tend to be between 7-8% depending on trade and the nature of your business. Most who go for an SBA loan will fall under this 7(a) category.
CDC/504 Loans
These types of loans are very specific. For example, if you are looking to purchase commercial real estate or perhaps a large piece of equipment, then this might be the program you fall under. The borrower may need to provide up to 20% of the total value, with the SBA kicking in 40% and the lender the rest. The cap on this type of loan is generally $5 million.
504 loans are available through Certified Development Companies (CDCs), SBA's community-based partners who regulate nonprofits and promote economic development within their communities. CDCs are certified and regulated by the SBA.
SBA Express Loans
An SBA Express loan is for funding from $150k - $200k. These are suitable for small businesses and newer companies. SBA Express loans are funded in as little as two weeks. The funds can be used for working capital, inventory, to supplies. It cannot, however, be used to pay off debt or purchase real estate.
At First Union, we specialize in matching your company with the perfect loan program. Financing is fast, flexible and suitable for a wide range of small businesses—in some instances—regardless of past credit. Call today at 863-825-5626 to find out how we can help you!