Small start-up businesses need loans more than owners of established businesses. For small enterprises, loan is required at almost every step of setting up the business. However, in most cases, small business owners find it difficult to obtain loans from conventional lending sources at reasonable rates. Start-up businesses in most cases cannot adequately fulfill the eligibility criteria set by banks and other conventional lenders.
Small Business Administration (SBA) is a government agency providing financial assistance to start-up businesses with the aim of improving the nation's economy. The small business start-up loans are not issued directly by the SBA to the borrowers. Instead, they work through their lending partners, including micro-lenders, community development organizations and private-sector lenders, who provide these loans to small businesses on the basis of the SBA terms and conditions.
SBA offers a wide variety of loans that cater to the financial requirements of different businesses. Let us discuss the various types of start-up business loans provided by SBA:
SBA 7(a): You can use an SBA 7 (a) loan for various purposes including:
- Purchasing machinery, furniture, equipment, fixtures, materials or supplies required for a business.
- Purchasing real estate including buildings and land.
- Establishing a new business or expanding an already established one.
- Meeting long-term working capital needs for paying accounts payable and operating expenses and also for purchasing inventory.
- Meeting short-term working capital needs such as contract performance, exporting, seasonal financing and construction financing.
- Constructing a new building or remodeling an already existing one.
- Refinancing an existing business debt.
There are various advantages of a 7 (a) loans over conventional loans such as:
- Easier eligibility criteria than conventional loans.
- Lower down payment rates on fixed assets.
- Longer maturity periods than conventional loans.
7 (a) loan amounts range from $350,000 to $3.5.
SBA 504: SBA 504 credit proceeds can be used for the following purposes:
- Purchasing real estate including land and already existing buildings.
- Constructing new facilities or renovating or remodeling already existing facilities.
- Purchasing equipment and machineries.
Like 7(a), the various advantages of SBA 504 include:
- Lower down payment rates on fixed rates.
- Extensive maturity periods than conventional loans.
- Easier eligibility criteria than traditional lends.
Loan amounts for SBA 504 starts from $350,000 and do not have any maximum limit.
SBA Express and Patriot Loans: These credits can be used for various purposes including:
- Purchasing inventory or vehicles.
- Meeting working capital needs.
- Purchasing equipment.
The advantages of these credits include:
- Easier eligibility criteria than conventional lends.
- Longer maturity periods than most conventional credits.
The loan amount of SBA express credits and Patriot lends range from $25,000 to $350,000.
It should be kept in mind that not all the banks providing SBA small business start-up lends offer the same SBA loan programs. In addition, the creadit requirements and the eligibility criteria for the borrowers may vary from bank to bank based on the bank policies and their individual terms and conditions.
