Examining the Various Types of SBA Loan Programs for Small Businesses

Whether you're just starting a beading business or you think you will need financial assistance later down the road, there are a number of different funding resources available to you through the U.S. Small Business Administration (SBA).

It can be difficult for entrepreneurs to receive approval for loans from big banks and private lenders. More financial institutions are tightening their restrictions on individuals looking to borrow in fear of them becoming delinquent. Small business owners are seen as especially risky because there is no way that they can tell if you're going to be able to repay the loan in the future. Even with a high credit score, it can be incredibly difficult to receive a loan through a large bank.

Luckily, the SBA now has three programs in place for entrepreneurs who are interested in opening a business to better their lives and their local communities--the 504 Program, 7(a) Loan Program and the Microloan Program. Depending on your current situation, one of these programs may be more beneficial to you than the others.
  1. The 504 Program. This SBA program is also referred to as the CDC program. CDC stands for Certified Development Companies, which are those who provide business loans to borrowers through the SBA. Typically, individuals receive approval for loans through the 504 Program if they are able to prove that their business will benefit the community.

    While there is no limit on how much money can be loaned to a borrower through this method, there are requirements that beading business owners must meet in order to receive financial assistance. The company at hand must adhere to size standards set by the SBA, and the money must be used for fixed costs. This includes expenses such as the purchase of existing land, businesses or equipment.

    One of the benefits of loans that are received through the 504 Program is that they come with fixed interest rates and can be paid over an extended period of time. This means that beading business owners will have time to straighten out their finances before they have to pay back the money.

  2. The 7(a) Loan Program. This program can be especially helpful to beading business owners who are looking to have more leisure with the money they receive through a loan. Money that is acquired through the 7(a) Loan Program can be used to do everything from purchase new equipment to pay for short-term capital needs.

    Individuals cannot use the money to pay for a change in ownership or for any other non-business purpose. While there are restrictions for these type of loans, they still give borrowers more freedom. It can be helpful to beading business owners who are interested in expanding their company. Loans from the 7(a) program can be used to purchase existing businesses or area for growth. There are also various types of 7(a) loans that can be used for special purposes, such as employee trust programs.

    In order to qualify for loans through the 7(a) program, borrowers must be able to demonstrate an ability to repay the money in a timely fashion. The business must also fall in line with SBA size requirements and be a for-profit company. The terms for 7(a) loans can be as long as seven years for working capital. This gives entrepreneurs time to improve their overall bottom line and make enough money to repay the loan in a reasonable amount of time.

  3. The Microloan Program. This SBA program is best suited for beading business owners who are already up and running, but looking for additional funding in order to solve temporary financial difficulties. The Microloan Program can provide short-term loans to borrowers to pay for immediate expenses.

    The SBA works with nonprofit community-based organizations to obtain the loans and provide them to entrepreneurs who need financial assistance. Microloans can be used for everything from working capital to the purchase of inventory or supplies. The only exception is that the money cannot be used to pay off existing debt. The terms and conditions of these loans vary depending on the borrower and the business. However, the maximum amount of time a borrower has to repay a microloan is six years.

    Even though these loans can be easier to obtain because they are backed by the SBA, lenders will still expect some collateral from the borrower. Entrepreneurs may also have to prove that they have the ability to repay a loan in a reasonable amount of time through a good credit history. Although it can be tough to receive approval for a microloan, this form of financing can be an efficient way to take care of minor bumps in the road as an entrepreneur.