RE/MAX Commercial Group Blog

Small Business Financing From The SBA

The Small Business Administration is a useful resource available to start-ups and established small businesses. An Independent agency of the Executive branch of the Federal Government, the SBA has the responsibility of providing assistance to American small businesses in the areas of advocacy, management, procurement, and financial assistance. The SBA financing comes in the forms of investment programs, business loan programs, disaster loan programs, and bonding for contractors. In most cases, the SBA is a great business financing resource for  small business owners looking for financing.

The SBA has three different loan programs for small business financing. It is important to know that while the SBA has these programs, they do not actually provide the business financing. The SBA sets the guidelines for these loans, then their partners, which include lenders, community development organizations, and microlending institutions, actually make the loan to small businesses. The SBA guarantees the loans, to reduce the risk to the lenders.

The first type of business loan that the SBA offers is the Basic 7(a) Loan Guaranty. When a small business is unable to obtain financing from other sources, this is the primary business loan program offered. This is the SBA’s most flexible business financing program, and it is ideal for start up business financing as well as established business financing. This type of new business financing can be used for most business purposes, such as working capital, equipment, office furnishings, land and building, leases, and even debt refinancing. The maturity date of the loan varies, depending on what the loan is used for. For working capital, the loan maturity is up to 10 years, while it is generally up to 25 years for fixed assets.

There are several different variations of the Basic 7(a) loan program, designed to fill specific needs. This type of loan is the closest a small business owner can get to free business financing, because any fees that the SBA has for administration are charged to the lender. However, the lender does have the right to make those fees a part of your loan, which means that you may ultimately pay those fees.

The second type of loan that the SBA offers is the Microloan. This is known as the 7(m) loan program. These are short-term loans of up to $35,000, and are primarily for small businesses and non-profit child care centers. They are meant to provide working capital, inventory purchases, supplies, furnishings, and equipment. They may not be used to pay existing debts or to purchase real estate. This type of business financing is great for business owners who wish to expand.

The third type of small business financing available through the SBA is a Certified Development Company (CDC) loan. Known as the 504 loan program, these loans should only be sought by businesses that require brick and mortar financing. These are long-term, fixed-rate loans made to small businesses to enable them to purchase real estate or equipment for expansion or modernization. The CDC loans are issued through private lenders, and are usually $1 million or less, but in some cases, can go as high as $1.3 million.

Small business owners can combine different types of loans, such as a CDC loan and a Microloan, to better suit their small business financing needs. The SBA works with the business owner to determine which loan programs best suit the financial requirements of the business

If you have more questions about small business loans, contact your lender or a commercial advisor with RE/MAX Commercial Group. We’ll get you pointed in the right direction with a lender we have experience with. Give us a call at 517-321-2800 or visit rcgmichigan.com for more information.