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Start-Ups

SBA Loans: What They are and How to Qualify

By Townes Haas   |    March 12, 2014   |    2:47 PM


The U.S. Small Business Administration (SBA) is a government agency that assists in the establishment of small businesses to ensure free competition within the U.S. economy. Assistance comes in a variety of forms, including starting and growing a business, and finding loans and grants. The SBA also offers its own loans to qualifying businesses.

What Are SBA Loans?

SBA Loans support the agency’s commitment to helping small businesses grow and thrive within the U.S. The agency does not work directly with businesses. Instead, it offers the loans through nationwide lending partners and establishes the guidelines for the loans given out by these partners.

To minimize the risk to the lending partners, the SBA will guarantee a percentage of the loan. Securing a portion of the loan also increases the chances that the lending partner will provide the funds to small businesses that need the assistance. Unlike grants, SBA loans are not free money; they must be repaid. Check the terms of the loan, including fees and interest rates, before signing the loan documents.

Types of SBA Loans

The SBA offers four main types of loans:

General Small Business Loans - 7(a): The 7(a) loan can be used for nearly any type of business purpose, including buying computer equipment, establishing inventory, purchasing commercial real estate or even buying out a competitor. Startups can especially benefit from this type of loan since they can use the loan for startup capital. The maximum loan amount is $5 million.

Microloan Program: The Microloan Program helps small businesses and certain types of not-for-profit childcare centers either start or expand a business. These funds are designed for businesses that have smaller start-up capital requirements, and nonprofit community organizations administer the loans. The maximum loan amount is $50,000.

Real Estate & Equipment Loans - CDC/504: The CDC/504 loan is specifically for the following: purchasing land, improvements to land/streets, and constructing new or improving existing facilities. It cannot be used for debts, speculation/investment in rental real estate, or working capital or inventory. The maximum loan amount is $5.5 million.

Disaster Loans: These types of loans are offered to renters, businesses, certain types of nonprofits and homeowners living in an officially-declared disaster area. Businesses of all sizes can qualify for this loan. Depending on the type of loan, individuals and businesses can use the funds to repair or replace personal property, real estate, equipment, inventory, machinery or business assets. The maximum loan amount is $2 million.

How Do I Qualify

All of the loan programs have their own requirements. Check the SBA website to determine eligibility requirements. You can also contact your bank or economic development organization, and see if they are an SBA lender. If they are, you can work with them directly to determine what you need to do to qualify for an SBA loan.