Small Business Loans (SBA)

SBA Loan Programs for Small Business

Small business loans are sponsored by a government agency known as the Small Business Administration (SBA.) SBA loans are made by banks and other lenders and guaranteed by the SBA.

The Small Business Administration (SBA) offers small business owners government guaranteed loans that are easier to obtain than a typical bank loan since they are guaranteed by the SBA. Depending on how long a business has been established and the quality of the borrower's credit, non secured loans are available.

Newer businesses will usually be required to provide collateral for the loan such as a mortgage or second mortgage on the borrower's home. If you use your home as collateral you can lose your home if your business fails and you can't repay the loan. Consider the impact on your family of losing your income and your home at the same time.

The Small Business Administration (SBA) offers the following types of loans:

SBA Unsecured Credit Lines

A simple line of credit that is offered by banks and private lenders under the guarantee of the SBA. Rates will vary greatly so it is important to shop for a suitable lender with the best rate. Good credit and an established business are prerequisites for this type of loan. Maintaining complete and accurate financial statements to present to the lender is crucial.

Lines of credit are especially desirable for businesses that have seasonal cash flow issues or need funds on a short term basis for such things as purchase of inventory. For example, many businesses will borrow money during the summer to purchase inventory for the holiday season. The loan is then repaid when the inventory is sold.

Interest rates on lines of credit are usually pegged to prime rate and can be volatile during periods of rising interest rates. This presents a risk to the borrower.
Interest is only charged on the amount of funds outstanding. For example, the borrower may receive a line of credit for $25,000 and then only borrow $10,000 for operating expenses. Interest is only charged on the $10,000 and the borrower still has $15,000 remaining in their line of credit.

SBA Short term loans

Short term loans are usually three years or less in duration and are paid back in the same manner an auto loan would be paid. That means you will have monthly payments to make on this loan until the loan is paid off. SBA short term loans require collateral which my be in the form of land or other assets such as equipment. For example, you may want to purchase equipment for your restaurant and need to borrow the money to make the purchase. The equipment would be used as collateral for the term of the loans. Once

SBA Long Term Loans

Loans longer than three years are available for major equipment or other asset purchases such as land or a building. SBA long term loans often contain interest rate adjustment provisions as well as prepayment penalties. You can shop for the best rate and terms on SBA loans by contacting several SBA lenders as you would a bank loan. SBA does not make the actual loan but provides guarantees for the bank as an inducement to make the loan.