What is a SBA Loan?

SBA loans are issued by the U.S. Small Business Administration (SBA), a federal government agency. The main purpose of the SBA business loan is to administer loan guaranty programs and provide support services to promote growth and development of small businesses across the nation. Since its inception on July 30, 1953, the Small Business Administration has helped procure over 20 million loans and loan guarantees for small business. Additionally, small business is provided counseling support, contracts, and other types of assistance through the SBA. Small business loans are offered to businesses through SBA affiliated financial institutions.

Small Business Loan Purposes
SBA loan guidelines reflect the purpose of small business finance, loans offered for business purposes, including start-ups, franchise financing, working capital, owner-occupied commercial real estate, inventory and equipment , business acquisitions, improvements and renovations, and debt refinancing.

SBA Loan Program Guarantee
SBA loans are guaranteed small business loans through a financial lender. The level of guarantee depends on the loan value and the specific SBA loan program the lender may use. Any financial lender can do business with the SBA loan on your behalf. The guarantee enables lenders to take on greater risk on small business owners that may not be able to obtain conventional financing.

SBA Government Loans Program Different from Conventional Small Business Loans
The two main features of SBA loan programs that differentiate it from conventional small business loans are that they are accompanied by lower payments and longer term financing. Herein, the result is that the small business startup or an expanding one can retain more cash flow for operational expenses and growth, and use less towards debt repayment.

Most Popular SBA Loan Programs

Here is a quick review of the Small Business Administration’s most popular loans:

SBA 7a Loan
The SBA 7a is the most popular small business loan program offered by the SBA. The partially guaranteed loan, obtained through a private lender gives the small business owner the ability to obtain an amount up to $750,000. As the agency’s most flexible small business loan program, the SBA 7a can be guaranteed for an assortment of general business purposes.

This loan can be used for machinery and equipment, working capital, fixtures and furniture, land and building (including new construction, purchase, and renovation), leasehold improvements and debt refinancing (under special conditions). Small business owners with an ownership holding of 20 percent or more must personally guarantee the loan. Loan financing term is up to 10 years for working capital and usually up to 25 years for fixed business assets.

SBA 504 Loan
The purpose of the SBA 504 loan program is to supply long-term fixed-rate financing for purchase of real estate, machinery or equipment needed for modernization or expansion. Generally, a SBA 504 loan project includes a loan secured from a certified development company (entirely funded by a SBA-guaranteed debenture), secured loan from a private lender with a senior lien, 40 percent of the entire cost being covered by a junior lien, and at least a 10 percent equity contribution from the small business owner.

SBA 7m Microloan
The microloan is meant to provide short-term SBA loans of up to $35,000 to not-for-profit child-care centers and small businesses for purchase of inventory, working capital, fixtures, supplies, furniture, equipment and/or machinery. The borrower is restricted from using proceeds to pay existing debts or to purchase real estate. The SBA 7m loan is not guaranteed by the SBA. An SBA intermediary gives the microloan to the applicant. Also, the intermediary organizations offer ongoing management and technical assistance to the small business. The microloan program is restricted to certain locations in most states.

If you are a small business in search of low-cost, long-term capital, a SBA loan program may meet your needs.