If you are a small business owner, the Small Business Administration should be considered a close ally. Their whole purpose is to provide resources and funding to small businesses that need help. Additionally, they help businesses that might have trouble getting approved for a loan through a traditional bank.
SBA loans have many options, so it is helpful to know which type of loan would benefit your business the most. It should be noted that the loans require a lot of paperwork to be filled out and submitted and can take months to be approved, so it is important to start the application process before you are in dire straits.
SBA 504 Loan
These loans are typically used to fund specific projects, so they require more research and examination to be approved. Projects that could qualify for approval are buying land and building a new facility or purchasing an existing building and modifying it to fit your business needs. You can also purchase long-term machinery to help your business grow faster.
To be considered for this type of loan, your business must have an average net income of less than $5 million and a net worth of more than $15 million. An upside to this type of loan is that you can get approved for 90% financing, have longer periods to pay off the balance, and have fixed interest rates.
SBA 7(a) Loan
Of all of the SBA loans available, this is the most sought-after by small business owners. For borrowers seeking less than $25,000, they might not be required to put up any collateral. However, those looking to borrow $350,000 or more should plan to provide a significant amount of collateral. If businesses don’t have enough collateral to fully secure the loan, the lender will take personal real estate of the business owners as collateral. Businesses that meet all qualifications can be approved for loans as high as $5 million.
SBA Express Loan
This type of loan is popular because the process of getting your application reviewed is much faster. A typical business can receive an approval within 36 hours; however, it can still take a month or longer for the funds to arrive. The max amount that businesses can receive with this type of loan is $350,000. As with the 7(a) loan, borrowers are not required to provide collateral for loans under $25,000. Additionally, the lender and borrower can negotiate the interest rate, but the rate can’t exceed the SBA max, which varies from 7.5-8% depending on how much a business borrows and how long the pay-off period is.