Types of business loans offered

Basic 7 (a) Loan Program
The name comes from a section of the Small Business Act. This is the most common and basic loan small business owners are likely to encounter.

Scores of American banks participate in this program, along with some non-bank lenders. Lending institutions that agree to structure their loans according to SBA requirements receive a guaranty on only a portion of the loan. Private lenders ultimately make and administer the loans.

The 7 (a) loan can be used for a host of business purposes, including equipment and real estate pruchases, renovations and new construction, debt refinancing and working capital. For those seeking loans for working capital, maturity runs up to 10 years. For fixed assest, loan maturity is typically up to 25 years.

CDC/504 Loan Program
This program serves as a mechanizm for long-term funding for small business owners. Entrepreneurs willing to tap into their equity can obtain long-term, fixed rate loans for major fixed assets, typically real estate or physical builidngs.

These finance projects are often comprised of a collection of loans from several sources. Those might include a commercial lender; a loan from a Certified Development Company, a nonprofit corporation that facilitates economic development in a given geographical area; a junior lien covering nearly half the project’s cost; and at least 10 percent equity from the prospective borrower.

Loans under the 504 program come with greater restrictions in terms of how the capital can be utilized. In essence, small business owners can use the money only for fixed asset projects, including purchasing real estate, building new facilities or renovating existing structures and buying equipment.

The SBA recently expanded the 504 program through the American Recovery and Reinvestment Act of 2009. Qualified borrowers will be able to refinance their current SBA loan and roll over up to half of the total cost of
the purchase or pending expansion.

For example, a small business proprietor with a $500,000 SBA 504 program loan could refinance to leverage up to $250,000 for equipment or an expansion. but for every $65,000 backed by the SBA, a borrower is required to create or retain a job. Business owners must also have kept debt payments current for at least a year.

Microloan Program
This program offers minimal short-term loans to fledgling or growing small businesses. The SBA provides or guarantees a loan to a third-party intermediary, which are typically non-profit community lenders.
These intermediaries then dole out loans to qualified entrepreneurs in
amounts up to $35,000. The average loan is about $13,000.

Microloans fun no longer than six years. Terms will vary depending upon the loan’s size its intended use and the requirements of a given intermediary. Interest rates are also subject to fluctuation but typically range from
8 to 13 percent.

These funds also come with restricted uses. microloans can be used for working capital or to buy supplies, equipment, furniture and other physical needs. Microloan funding cannot be put toward repaying debts or buying
real estate.

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