SBA loans can be extremely helpful to small businesses, because there are a number of them which are available, so most small businesses should be able to find one which fits their needs, and which they might be eligible for. It is important to note however, that the Small Business Administration itself does not extend these loans to small businesses, but rather it guarantees at least a portion of the loan on behalf of a business, so that the actual lender will be more inclined to approve an application.
Another service provided by the SBA is that of pre-qualifying a small business for loan application preparedness. In pre-qualification, an SBA representative will review all of your documents prior to actually applying with a lender, for amounts up to $250,000. By ensuring that all documentation is in order and that a sound business plan accompanies your application, your chances of approval are significantly improved.
The basic SBA 7(a) loan
This is by far the most popular SBA loan type, because it can be used for a number of general purposes to help a small business gain traction and be positioned for growth. Most small businesses are eligible for this type of loan, provided that they: operate as a for-profit company, conduct business within U.S. borders, have at least some owner equity which can be invested, and have already pursued other lending channels. Even those businesses which have been turned down by a number of traditional lending institutions may find ready approval under this program.
The SBA 7(m) loan
These are micro loans which only provide up to $35,000 in funding for a small business, or for a non-profit organization. The proceeds of the loan may be used for specific purposes such as to purchase equipment, inventory, furniture, fixtures, or supplies. It may not be used to refinance debt or to purchase real estate.
The SBA 504 loan
These loans are typically offered to brick-and-mortar small businesses, and are comprised of funding which is 10% borrower equity, 50% private sector loan, and a 40% component issued by a Certified Development Company (CDC). The CDC would be a non-profit company whose interest is in building the community through economic development, and its offering would be fully guaranteed by an SBA note.