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What is a SBA Loan?

If you are like many other new business startups, you are looking for funding; without it, you won’t be getting very far and you might not even have the money to buy needed equipment and supplies. Aside from emptying your savings, asking relatives for the money or taking out a mortgage on your home, many small business owners are turning to the Small Business Association for the loans they need.

An SBA loan isn’t necessarily a loan, it is more of a guarantee to banks and lending institutions that the SBA will pay off a percentage of your loan if you default. There are many different types of SBA loans available to small businesses including those for:

Export Assistance

Disaster Recovery

Veteran And Military Communities

Caplines (To Help With A Short-Term Need)

Businesses That are Working to Control Pollution

Businesses Working in Areas Affected by NAFTA

Although these are some of the more specialized loan programs, the following are the most popular choices for many of today’s small businesses.

7(a) Loan: these are loans that can help new or existing small businesses get the financing they need. A 7(a) loan can be used for more general purposes, such as working capital, purchasing or renovating land or buildings or buying necessary equipment

these are loans that can help new or existing small businesses get the financing they need. A 7(a) loan can be used for more general purposes, such as working capital, purchasing or renovating land or buildings or buying necessary equipment Microloan: This program offers smaller loans to help businesses get started or expand. They can be used for working capital, supplies, furnishings, inventory, or equipment.

This program offers smaller loans to help businesses get started or expand. They can be used for working capital, supplies, furnishings, inventory, or equipment. CDC/504 Loan: The CDC/504 loan program provides long-term, fixed-rate financing for major purchases such as buildings, land, or long-term machinery. The maximum amount of a CDC/504 Loan is $5 million.

How to Apply For a SBA Loan

Applying for a SBA loan may seem confusing at first since the qualifications aren’t made very clear. If you follow the guidelines for applying for an SBA loan, you should have success. The following steps will get you in the right direction.

– Determine if you are eligible. Many companies that exceed size, sales or employment standards are rejected automatically from the loan process. Contact an SBA lender to see if your business qualifies or not.

– Choose the right SBA loan. The 7(a) program is the most flexible while the CDC/504 loan program works best for companies wanting to expand or purchase fixed assets. If your business only needs a small infusion of working capital for supplies or inventory you should consider the micro-loan program.

– Complete the SBA loan application. The SBA lending process officially begins when you complete the loan application. It’s an 8 page application that includes an Application for Business Loan, Statement of Personal History and a Personal Financial Statement. If you own more than 20 percent of a borrowing company, you must also complete a Personal Financial Statement and a Statement of Personal History.

– Collect the necessary documentation. You will need to include copies of these documents in the SBA loan application process:

Business plan

Management resume

Business license

Three years of business financial statements

Three years of business federal tax returns

Three years of personal federal tax returns

Any building leases (if applicable)

A listing of proposed loan collateral

– Choose the right lender. Having the right lender can mean success or failure for your SBA loan application. You can choose from a wide array of lenders for your SBA loan; choose one that you are comfortable with and that has a good track record.

Knowing more about SBA loans and what it takes to apply for one, can make the process much easier and much more effective for your small business.