Small businesses often need capital to expand, grow or simply start up the company. The Small Business Administration, or SBA, is a useful organization that helps growing and start-up companies obtain funding. Though SBA loans are issued by private lenders like many other financial opportunities, they have some key differences that make the loans unique.
The Guarantee: An SBA loan is guaranteed by the Small Business Administration. This guarantee helps small companies obtain funding because the lenders are more willing to work with the business owner as a result of that promise of payment.
The assurance that private lenders receive when company owners are taking out an SBA loan is that if the business owner defaults on the loan, the SBA will reimburse the lender for the remaining loan amount.
The issue of a guarantee hedges the risk that a lender is taking when providing funds to the small business. This reassures lenders that they will always receive the full amount of loan, even when the borrower is unable to manage their payments.
The Loan Options: Beyond issuing the promise of reimbursement to the lender, SBA loans have another aspect that makes them unique: the wide range of loan options available. The purpose of any loan through the SBA is helping the small business begin, grow or expand. Despite the fact that SBA strives to help companies obtain the funds needed for growth, a few options are available to select between when applying for the loan.
The Basic 7(a) Loan Program is the most common loan issued by the SBA. This is used for new and existing companies that need funds to start or expand. For many businesses, this is the appropriate loan application.
Companies that are planning expansion and want a long-term loan can opt for a Certified Development Company 504 loan instead. This loan offers a fixed and low interest rate that is slowly repaid over a period of a few years.
For the non-profit organizations that intend to provide small loans for start-up and growing companies, the SBA also offers the Microloan Program. This is particularly meant for loans that do not exceed $35,000 and are provided by the non-profit organization.
SBA loans are different from the basic loan because of their guarantee. They offer peace of mind that the business owner can obtain funds and the loan will always have a full repayment.
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