The U.S. SBA loan program hit another lending record in FY 2014 by approving $19.9 Billion for small business owners through the use of its 7(a) program. Improving economic conditions, fee relief and an increase in the SBA authorization limit helped 52,044 small business owners secure government backed loans. Loans to African American business owners saw an increase of 36 percent as compared to 2013. Loan approvals to women and Hispanics both saw a 14 percent increase from 2013. SBA Loan approvals for business loans under $150,000 saw an increase of 29 percent as compared to the 2013 — in part because fees were set at zero.
Government Business Loans For Women? Not Really.
While the SBA has resources available for women-owned businesses, the SBA doesn’t actually provide women-owned small businesses with special loans.
Government Business Loans For Minorities? Again, Not Really.
Just like with women-owned small businesses, the SBA doesn’t provide special loans to minority-owned businesses. Neither does the Minority Business Development Agency, although they do help minority owned small businesses better position themselves when applying for financing.
So Who Does The Small Business Administration Provide Loans To? No One.
The SBA doesn’t provide loans to small businesses, but instead insures a percentage of the loan offered by the small business lender. Should the small business default on repayment of the loan, the government will cover up to 85% of the lender’s loss. Since the government will be exposed to risk, they include several steps with SBA lending to vet the business owner and business during the loan application process.
What Are The SBA Loan Programs?
SBA 7(a) Basics
Use of SBA 7(a) loan proceeds can include:
- Short term working capital
- >Revolving funds
- Purchasing equipment and machinery
- Purchasing real estate
- Constructing and/or renovating a building
- Refinancing of business debt
SBA 7(a) Rates and Terms
- SBA 7(a) Fees and Interest Rates: Negotiated between borrower and commercial lender, with a maximum rate of 8%
- SBA 7(a) Loan Repayment Terms: 25 years for real estate. 10 years for equipment. 7 years for working capital.
SBA Microloan Program Basics
The SBA Microloan program provides funding up to $50,000 (with the average loan amount being $13,000) for small businesses through the use of nonprofit community-based microloan intermediaries.
SBA Microloan Uses
Use of Microloan program proceeds can include:
- Short term working capital
- Working capital
- Inventory or supplies
- Machinery, Equipment or Furniture
SBA Microloan Rates and Terms
- SBA Microloan program fees and rates: Usually between 8-13%
- SBA Microloan Repayment Terms: up to 6 years
SBA 504 Loan Basics
The SBA 504 loan program provides long-term, fixed-rate commercial financing for major fixed assets. To qualify for a SBA 504 loan a company must not be worth more than $15 million and have profits of more than $5 million annually (which the SBA confirms during the CDC504 loan application process which includes fulfilling a SBA checklist).
SBA 504 Loan Uses
- Purchasing land (including existing buildings) and purchasing of improvements.
- Construction of new facilities
- Modernizing existing facilities
- Purchasing long-term machinery and equipment
SBA 504 Rates and Terms
- SBA 504 Interest Rates and Fees: Interest rates are usually between 4-5%. Fees are usually 3% (which can be paid through use of proceeds).
- SBA 504 Repayment Terms: 10-20 years
