Using SBA Loans to Fuel Your Business

If your small business is having trouble making ends meet, the United States government’s Small Business Administration exists to help. Through them, loans offered by private lending agencies – such as banks – are backed and guaranteed.

504 SBA Loans

This loan is perfect for small businesses who are seeking to build out or purchase additional physical spaces for either retail or production. The financing is long-term and fixed-rated, two things that make this loan extra advantageous.

As with all of these loans, there are specific requirements to be eligible:

  • These loans cannot be used for renting or for real estate speculation
  • The business must be operating at a profit.
  • For the previous two years before applying, the business must have an average net income of more than $2.5 million, after taxes.
  • Business’ net worth must be less than $7.5 million.

7(m) Micro Loans

With a maximum lending offer of $35,000, these micro loans are offered to small businesses and nonprofit child care centers to help cover many of their day-to-day needs:

  • Equipment
  • Fixtures
  • Furniture
  • Inventory
  • Machinery
  • Supplies
  • Working capital

This type of loan is one of the few to not be guaranteed by the SBA. Instead, the SBA guarantees the loan to the private lending agency, who in turns offers the loan to the small business. Because of this, these micro loans are not available in every state or region.

Unlike 504 SBA loans, these cannot be used to purchase real estate. Further, the loan is ineligible for companies who are seeking to pay down accumulated debt.

Basic 7(a) Loan Guaranty

The most common SBA loan, as well as the most flexible, this loan is offered to small businesses who otherwise may not be able to receive loans through traditional means. Because the government guarantees these loans, it lowers the risk for lending companies.

In fact, it is rare for a company to not qualify for this type of loan, as the eligibility requirements are fairly lax:

  • Alternative methods of funding have been previously explored
  • The business is for-profit.
  • The business plans to operate within the United States
  • The owner is able to invest in the business through personal assets

Once the loan is secured, the business can then use the proceeds on a variety of business needs:

  • Buildings
  • Equipment and machinery
  • Furniture
  • Land
  • Working capital

Conclusion

SBA loans exist to help your business. While there are requirements to qualify and restrictions in how they may be used, they can help a small business make ends meet during and continue to grow.

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