I have successfully used unsecured business lines to invest in real estate, the stock market, start up businesses and even thoroughbred race horses. But I’ve never had any luck getting money from the small business administration.
Take a look at this article and compare how hard it is to qualify for SBA funding and how easy it is to get business lines of credit. And don’t forget that the SBA does not give the money away. You will pay hefty fees and rates just to apply and then to use the money under their restrictions.
Do you know what the SBA actually does for small businesses?
Here are answers to the most common questions about the SBA.
Who can borrow the cash?
What credit program is available to best suit my individual needs?
When the SBA can help?
Where does the money come from?
Why current program status matters?
How it works?
The 7(A) Loan program allows the borrower to obtain up to $2 Million, depending on the type of 7(A) Loan and is for use of most any business purpose, including working capital.
The funds are provided through a Commercial Bank, Credit Union or Financial Service Company. Loans are typically made for 7 to 10 years. Collateral is usually required for standard 7(A) loans. The top interest rate currently ranges 2.25 percent over prime to 4.75 percent over prime.
The SBA approves the loan and guarantees up to 85 percent of its value. With the easier-to-apply-for Express loans, the guaranty is 50 percent and the bank approves the loan.
The 7(A) Loan is still the SBA’s bread-and-butter loan program. Last year, however, the total dollars loaned fell nearly 4 percent to $13.7 billion.
The SBA’s fastest growing loan program is the 504 Loan. With these funds, a manufacturer can borrow up to $4 million for fixed assets like real estate or equipment. Firms in other industries can borrow up to $2 Million.
Funding for the 504 Loan program are made available through a commercial bank and a non-profit Certified Development Company. It is common the borrower makes a 10 percent down payment. The lenders set interest rates separately. The bond market determines Development Company’s rate.
Approval and guarantee for the development company’s entire portion of the debt is provided by the SBA, which is packaged with other loans and sold as a bond on Wall Street.
The current administration has proposed eliminating up-front fees for borrowers which will make the 504 Loan the most attractive in the line up available.
The Micro Loan is geared towards helping very small businesses. Often used to start in-home companies, they are mostly held by low income or minority owners. Up to $35,000 is available for general business purposes.
A Micro Loan obtains its funding from a variety of sources including non-profit or government-affiliated community development organization, or Native American tribal agencies.
The organization makes loans of up to six years, typically at about 9.5 percent interest and provides technical assistance to borrowers to help them succeed.
The SBA provides a large direct loan to the community organization, which in turn re-loans the funds to its clients. The intermediary is expected to repay the SBA even if its clients default.
The Venture Capital Loan offered by the SBA is currently undergoing significant changes. It allows for the borrow to exchange an equity stake for early-stage financing use.
The lender is a Small Business Investment Company, a private, for-profit investment fund. SBICs leverage private investment with government-borrowed money. Debenture SBICs usually loan the money to firms. Participating security SBICs exchange money for equity.
Money loaned to SBICs is pooled and sold on the capital market, the SBA guarantees payment to those investors. The SBA then receives a profit share for participating security SBICs
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