Starting a new business is exciting. It brings with it unlimited potential but also an unlimited risk. Chances are if you’ve started a new business for the first time you are discovering a whole host of needs you did not even know existed. You probably need all sorts of new services, from payroll and accounting software to insurance and legal help.
Depending on the industry you are going into you will need equipment and major capital goods, perhaps machinery, office or factory space, and vehicles. All of this adds up very quickly, so many new business owners find themselves looking into another product most who stay on the consumer side don’t spend much time thinking about – business loans.
Chances are if you’re looking at loans for small business you’ve heard good things about SBA loans. A quasi-government institution, the Small Business Association provides all kinds of services to small businesses.
The SBA generally does not provide loans themselves, but they do offer guarantees to lenders on behalf of small businesses, basically acting as a cosigner. Thousands of businesses take advantage of these offerings every year, getting access to more credit at lower rates than they would be able to on their own.
There are six major categories of SBA loans, but for the purposes of this article, we will focus on the two most relevant to the majority of businesses.
SBA 7(a) Loans – SBA Express loans, SBA Advantage loans
This is by far the most popular category of loans for small businesses to take. They can be used for basically anything including buying capital goods, refinancing debt, buying other businesses, or just as working capital.
When people talk about SBA loans, this is typically what they have in mind as these are far and away the most popular loans the SBA provides. The loan amounts can go as high as $5,000,000, although not all do.
Within this type of loan, there are subcategories as well, the two most common being the SBA Express loan program and SBA Advantage loans. SBA Express loans, as their name implies, are expedited loans that businesses can get, typically within 36 hours though sometimes taking up to three days.
These loans fall under the rules of 7(a) loans, they are just much quicker than usual. This is great for businesses that have just started or see an excellent opportunity in the market that might not be there tomorrow.
A normal business loan can take three months or more to arrange and in the digital age, some businesses just don’t have time for that.
The SBA Advantage loan program is slightly different. While they are still 7(a) loans, they are aimed at underserved communities. The SBA wants to increase the number of lenders offering small value loans – defined as less than $250,000 – to these communities. With that in mind they are trying to encourage existing lenders to target these mission areas and to help facilitate new lenders in those areas.
The SBA is good at naming things, as these types of loans are likewise described well by their nomenclature. SBA Microloans are meant to help the smallest of small businesses with their financing. In particular, these loans are aimed at home-based businesses.
This program works slightly differently. The SBA does not actually guarantee any of the loans.
The SBA simply loans its own money out to intermediaries who then pass the money onto businesses they deem creditworthy. The loans themselves can be up to $50,000, although the average is only $13,000. Interestingly enough, the program also provides funding to nonprofit daycare centers that need help. While the loan sizes themselves appear rather small (at least as business loans go), the program has averaged $37,000,000 in approvals.
While there are many different types of SBA loans available to businesses, these two categories are the most common and ought to fulfill most needs that entrepreneurs have. If you are starting or funding a major business enterprise, an SBA 7(a) loan might be the right option for you.
If you are a consultant, stay at home mom, or someone else trying to start something on the side without much capital then an SBA express loan might be the thing for you. Whatever you do, remember that the SBA is there to support your business.
It is not at all uncommon to have questions about financing options or countless other aspects of the business. You can contact the SBA at any time and they will have staff on hand to answer your questions. You can also find professional advice, along with networking and other opportunities through them.
Most states also have economic development corporations that exist to support small businesses as they struggle to find a place in the market. The resources are there for those willing to take them!