Expecting to fill out SBA loan applications in the near future? When it comes to securing business funding, the determining factor for any lender is going to be the amount of risk they will take lending to your business. Many business owners will argue that the interest, fees, potential hidden costs and other eligibility qualifications are the hindrance of the business lending world. However, the bottom line is, a lender just wants to know that your business is capable of repaying the loan. Securing an SBA loan for your business can present a wealth of opportunity. Empower Lend strives to connect business owners with the funding they need, but more importantly, to educate business owners on the funding options available to them.
Simply put, a small business loan is a business funding product that is partially guaranteed by a government agency. Commonly misconceived, SBA loans are not issued or funded by the government. On the contrary, they are business loans that are funded by the lender and in the instance where the merchant defaults on the loan, the government would then guarantee the lender a certain percentage of the lost proceeds. For this reason, you may notice that SBA loan applications are associated with stricter eligibility criteria and approval protocols.
Different Types of SBA Loans
While there are various types of SBA loans available, there are some that are more sought after than others. Before you start filling out SBA loan applications, it is highly recommended to get a better understanding of the loans and how they differ from each other.
The 7(a) General Business Loan Guaranty Program is perhaps the most desired SBA Loan. This type of business funding is usually geared towards business start-ups and used for both short and long-term needs such as equipment purchases, real estate transactions or acquiring general working capital. In most cases, SBA loan applications can be used to secure up to $750,000 in guaranteed loan proceeds.
Small business loans such as the 7(a) loan, also have specific elements that are regulated by the government such as the interest rate. The government regulates how much interest can be charged over and above the prime rate in an SBA loan to eliminate the risk of predatory lending.
The 504 Local Development Company Program provides financing to small businesses at fixed rates for the purpose of acquiring real estate or working capital. The Certified Development Companies (CDCs) administer these loans through commercial lenders where 50% of the loan is funded by the bank, 40% by the CDC and the remaining 10% is covered by the business.
Securing an SBA loan with a fixed rate that is below the market rate comes with a certain level of responsibility! Your business will need to meet certain public policy objectives that may include rural development, revitalization of dormant business districts or improvement in minority-owned businesses. The 504 Local Development Company Program, in essence, was implemented to build communities, if your business plan, model and/or goods and services can contribute to such development, applying for this type of SBA loan may be in your best interest.
The SBA’s Microloan Program can provide from a few hundred dollars to $25,000 in working capital. This SBA loan program is designed for small businesses that are in need of a loan that is less than the minimum amount required by traditional lenders. These Micro-loans cannot be used for debt consolidation or to acquire real estate. The most distinct difference in this type of SBA loan is that it is not guaranteed by a government agency. In fact, this type of business funding is relatively only available through non-profit organizations.
What to Expect from SBA Loan Applications
When applying for an SBA loan, you may see three types of lenders mentioned – infrequent, certified and/or preferred. Understanding what each reference means may help you choose which SBA loan applications you should complete.
- Infrequent participant lenders deal with the SBA with a degree of irregularity. The SBA examines the loan situation that the infrequent lender presents and decides if it wants to cover a portion of the loan.
- Certified lenders are lending institutions who have staff that are trained by the SBA and who work regularly with them. These lenders examine the paperwork themselves, but the SBA has the final word.
- Preferred lenders are those with the best performance in the pool of certified lenders. These are the SBA’s highly recommended institutions who have final approval on the loans.
SBA loans can be a great option to consider for help grow your business. Securing working capital resources that will enable you to focus on production rather than funding can alleviate a substantial amount of future issues. The Empower Lend team is available to walk you through your business funding options and apply for an SBA loan.
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