Small businesses are the backbone of our economy, creating jobs and adding new and innovative products to the market. The Small Business Administration exists to support both emerging and growing small businesses by offering services, tools, and resources at affordable rates. The SBA also offers several loan programs to help those businesses meet demand, acquire needed assets and personnel, and preserve working capital in an undulating market. Those programs supplement traditional commercial loans, giving small businesses more options when it comes time to seek outside financial help.
7(a) Loan Program
This program is geared toward businesses that have special requirements either because of where they operate or because of new requirements established by laws such as NAFTA. Businesses that operate in rural and underserved areas, exporters, companies affected by new government regulations, and both active and retired military personnel are all included as “special requirement” businesses under this program. Startups can also seek funding through this program.
Micro Loan Program
Under the micro loan program, the SBA provides small, short-term loans to small businesses and certain nonprofits. The SBA sets very specific guidelines for how the micro loans can be used. Namely, the loans cannot be used for buying real estate or for paying off existing debt. Instead the loans can be used to purchase inventory, furniture, and equipment as well as to use as working capital. The maximum loan amount allowed under this program is $50,000; however, the average loan amount is typically around the $13,000 range, although the loan amounts can be higher, sometimes as much as $250,000, depending on the micro-loan provider’s parameters.
CDC/504 Loan Program
The 504 program is the vehicle through which the SBA spurs much of its economic development and public policy goals. This program provides long-term, fixed-rate loans for the acquisition of major assets such as commercial real estate, equipment, improvements to real estate, and modernization of facilities for energy efficiency. The maximum loan amount allowed depends on the purpose of the loan and which public policy goal it is satisfying (e.g. rural development, energy efficiency, minorities in business, etc.).
All three programs use third party intermediaries to facilitate funds. Both the 7(a) and 504 programs also require a traditional lender and a consultant to assist with packaging and processing the loan. Check with your local SBA office to learn more and to identify trusted consultants in your area.