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SBA Loan - SBA loans
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SBA loan programs are generallyintended to encourage long term small business financing,however, actual loan maturities are based on several differentfactors.
1) the ability to repay,
2) the purpose of the loanproceeds, and
3) the useful life of the assets financed.
However, maximum loan maturities have been established:twenty-five years for real estate and equipment and seven yearsfor working capital.
Basic 7(a) loan Guaranty:
The 7(a) is an SBA guaranteed loan provided through SBA certifiedcommercial lending institutions. The maximum loan amount for a7(a) is $2 million, with the SBA guaranteeing up to 75% or $1.5million.
Interest rates for 7(a) SBA loans are usuallynegotiated between the borrower and the lending institution.However, the SBA itself has set maximum interest rates dependingon the loan amount, the highest rate being 4.75 percent on aloan of $25,000 or less with a maturity of seven years or more.
Because of it's flexibility, the 7(a) is ideally suitedfor start-up or small growing businesses who are deniedfinancing through other sources. The loan funds can also be usedfor a wide variety of purposes: renovation, real estate,equipment, payment of prior debts, etc.
The 504 SBA loan is designed to not only benefit the small business thatreceives the loan funds, but also the community in which thebusiness resides.
Each 504 loan is administered through a CDC, aprivate, nonprofit corporations set up to contribute to theeconomic development of their specific community or region. TheCDC will make small business loans up to a maximum of $2 millionwith the understanding that the business will use the funds in amanner that will further community or regional public policygoals.
Typical goals may include: business districtrevitalization, export expansion, rural development, expansionof minority business development, etc. In total, there are about270 CDCs nationwide, each covering a specific geographicalarea.
Interest rates on 504 loans are pegged to an incrementabove the current market rate for five-year and 10-year U.S.Treasury issues. Maturities of either 10 or 20 years areavailable.
The 504 loan program is ideal for businesses in needof "brick and mortar" financing such as equipment orbuilding acquisition.
MicroLoan, a 7(m) Loan Program:
The MicroLoan Program provides very small loans to start-up orgrowing small business concerns. Under this program, the SBAmakes funds available to nonprofit community based lenders whoact as intermediaries.
These lenders in turn make loans toeligible borrowers in amounts up to a maximum of $35,000. Theaverage loan size is about $10,500. Applications are submittedto the local intermediary and all credit decisions are made onthe local level.
In addition, each intermediary is requiredto provide business based training and technical assistance toits borrowers. Individuals and small businesses applying formicroloan financing may be required to fulfill training and/orplanning requirements before a loan application is considered.
This type of SBA loan is ideal for smallbusinesses that need extra money for working capital or thepurchase of inventory, supplies, furniture, fixtures, machineryor equipment. However, the loan funds may not be used for thepurchase of real estate or to pay existing debts.
If you qualify for and receive an SBA loan, you can look forward to several benefits. SBA loans typically have longer maturitiesthan comparable bank loans.
Because you will be paying the loanback over a longer period of time, down payments and interestrates are usually lower which means you're monthly payment willalso be significantly lower than it would be under the terms ofa conventional loan.
About the author:Cameron Brown is a client account specialist with
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