Small Business Administration (SBA Loans) and which one is right for your small business

Sometimes you can run into problems when applying for your business loans.  It could be because it lacked a collateral or because you don't have a sufficient down payment to meet the bank's requirements.  In those cases, using SBA programs might enable you to your business to get the loans that you need and mitigate any risk that the bank might identify.

There are quite a few small business administration loans that you're business might qualify for, but I'm going to concentrate on to most popular options for small business owners.  The first is called the SBA 7A program.  It should be noted that this particular program can only be utilized by going through a bank.  You cannot go to the SBA directly and apply for this loan.  Quite simply, the reason that someone might need an SBA 7A is when they are applying for a business loan, but do not have sufficient collateral from the bank's perspective.  The example of this would be if he were purchasing inventory to start your business in the bank would only lend 50% of the purchase price of that inventory.  Typically, the bank will attempt to work with the to identify other assets that you may have to fully secure the loan.  If you truly have exhausted all of your available business assets and personal assets,then you may be a candidate for SBA 7A loan.  Keep in mind that you're business still has to have the ability to repay any proposed debt.  Assuming that you were business can't repay the proposed debt, then the SBA 7A loan program what guarantee the banks loan to you by covering any collateral shortfall.  This allows the bank to make the loan to your business even though you do not have sufficient collateral to cover the loan amount. 

Another common SBA loan is the SBA 504 loan.  This is for small business owners who'll do not have the 20% down payment that is required for building purchase.  The way this works is the bank takes a 1st mortgage position for 50% of the purchased price of the proposed buildling, the SBA takes a second mortgage for 40% of the building purchase, and the owner puts the remaining 10% into the purchase.  This puts the bank at a good enough collateral position to make the loan to your business.  As opposed to being at an 80% Loan-to-value, the bank is now at 50% which lowers the risk considerably.  Some of the other benefits of an SBA 504 loan is that instead of a five year fixed rate that you would normally get through the bank, the SBA will issue a bond to determine your fixed interest rate.  The interest rates for the SBA portion of the loan are historically much lower than your bank can offer. Not only that, the loan is locked for 20 years as opposed to 5 years with the bank.  This is a perfect loan to utilize if you're business can't afford it percent down payment required.

These are the most common small business administration loans are used for small business banking.  Your local bank should be familiar enough with these loans to suggest them to you if you are experiencing either a collateral shortfall or the inability to come up with a 20% down payment.  It is helpful, however, to be aware of these programs prior to going into your meeting with the bank.  Just a you could speak intelligently about your options.

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