If your business needs funding for restructuring, reinvestment, just plain old growth, or for additional working capital there are a number of SBA loan guaranty programs that may fit the bill. Here is a quick review of some loan products available with SBA guarantees.
I have to start off by saying, "THERE ARE NO GRANTS FOR BUSINESSES." Whether there are is easily the question I am most frequently asked. There are however, a number of loan products with SBA guarantees. Just what is an SBA guarantee? The SBA does not lend money directly, loans are made through banks and investment companies. The SBA guarantees a portion of the loan so that in the event of a default, the lender is paid off. This does not, however, "get you off the hook." You are still responsible for the loan and will have to personally guarantee it as is common practice with any business loan.
What the SBA guarantee does is make it possible for the lender to offer a lower downpayment, longer loan amortization period, and somewhat less stringent credit approval than for loans without the guarantee. These advantages allow the entrepreneur to have a better cash flow (due to lower downpayment and lower monthly payments as a result of longer amortization period) which will provide more working capital for the business. There are a number of SBA loan products. Among them are:
SBA 7a Loans - The SBA 7a loan program is the most widely used SBA program. Loans may be used for acquisition, expansion, construction, recapitalization, refinance, business buyout, start-ups, working capital, and machinery or equipment purchases. Loan amounts are up to $2 million at a floating rate above prime rate, usually adjusted quarterly. Loan terms can be up to 25 years.
SBA 504 Loans - The 504 loan program is a long-term finance option specifically designed for the purchase of long-term assets such as owner used commercial real estate or machinery and equipment. 504 loans are issued by SBA approved community development corporations as a second mortgage for approximately 40% of project costs, in conjunction with a first mortgage for 50% of project costs from a conventional lender. The second mortgage amortization is usually up to 20 years with the first mortgage being up to 25 years. Interest rates can be either variable or fixed.
SBA Community Express Loans - The Community Express Loan program offers loans from $5,000 to $50,000 for working capital purposes. These loans are unique among SBA loans as they are unsecured... no collateral is required. Loans are based solely on the credit of the borrower, both the business and the principals. Loan terms are for 10 years with interest at approximately 4.75% above prime rate for loans up to $25,000 and 3.75% above prime rate for loans from $26,000 to $50,000.
While there are other SBA products, the above are the most commonly used. All loans require a downpayment for start-ups, buyouts, or business acquisitions. A business plan will be required for all loans. There are fees associated with loans that vary with each loan type. Borrowers will have to personally guarantee the loan. Except for the Community Express loan, collateral is required as are tax returns.
Either among the above, or in other SBA products, there is a loan program that will fit most business needs. For further information about SBA loan programs contact the Small Business Development Center in Ocala at 352-622-8763.