Obtaining the Best SBA Loan for Your Business

When you operate a small business that needs funding, the Small Business Association offers a number of loan options. Understanding the loans and how they are used can help you determine the best financing option for your small business.

Basic 7(a) Loans

When thinking of SBA loans, the basic 7(a) loan is what usually comes to people’s minds. These loans can run for up to ten years for capital and up to 25 years for fixed asset financing. There are requirements to qualify for the 7(a) loan. Businesses:

  • Operate as for-profit organizations
  • Operate in the United States
  • Have owner equity
  • Have considered additional financing sources

In addition, there are financial requirements, such as the company’s business credit score, that must be met in order to qualify for this particular small business loan. There are a number of variations of this loan available based on the needs of the small business.

504 SBA Loans

The 504 SBA loan is used for the acquisition of equipment, machinery, modernization efforts, or the acquisition of real estate. This type of loan typically requires ten percent equity from the borrower and a loan of at least fifty percent of the loan amount from a lender in the private sector. These loans are given to small businesses with brick and mortar operations. In order to qualify, businesses:

  • Operate as for-profit organizations
  • Not exceed $7.5 million in tangible net worth
  • Not exceed $2.5 million in net income after taxes for the previous two years

These loans may not be used for investment in rental real estate.

7(m) Micro Loans

The 7(m) micro loan is a short-term loan of up to $35,000 for small businesses as well as non-profit child-care centers. These loans are used for working capital and purchases for operations, such as inventory, furniture, and supplies, among other types of purchases. These loans may not be used for real estate or to repay existing debts.

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