Small businesses are a big part of the United States Economy and employ most of the workforce, even though these companies are described as having no more than fifteen hundred employees each. Many large corporations started as “mom-and-pop” operations and grew through clever business strategies. Because of these factors, the Small Business Administration was established to provide resources to companies, such as SBA 7a loans and other financing programs, helping smaller companies compete with the big boys while keeping unemployment low.

SBA Basics

It is essential to understand that the Small Business Administration does not lend any money. Instead, the SBA guarantees part of the loan to help businesses qualify for financing and reduce the risks to lenders. This distinction means that when you apply for an SBA loan program, you ask the Administration for help securing a bank loan from an approved lender. You will usually fill out the paperwork with help from your bank’s loan officer after being denied a traditional loan.

7a Loan Program

SBA 7a loans are also called general SBA loans and are the most common. You can use this funding to pay for long or short-term working capital, revolving credit and even large purchases such as real estate or equipment. These loans are usually capped at five hundred thousand dollars, and the SBA will guarantee up to eighty-five percent of that amount, meaning your company will have to guarantee the rest. Smaller loans, for working capital or equipment, usually have ten-year terms, while larger ones, for real estate, will have terms as long as twenty-five years.

504 Loan Program

The SBA 504 loan program has more limited uses than the 7a. These are also called CDC loans because you will need to work with a Certified Development Company to purchase or renovate real estate for your business. Your company will be required to occupy at least fifty-one percent of the property. You can also make large equipment purchases, refinance existing mortgages or construct building additions with these loans. Because this loan program deals primarily with larger purchases, the amount you can borrow is capped much higher, at five million dollars and the terms are typically for twenty-five years. However, the qualifications and limitations are also higher for 504 loans than for 7a loans.

Overall, if you are looking to grow your business and have been denied a traditional bank loan, you can apply for assistance from the Small Business Administration. The SBA 7a loans you can secure will be more flexible than the 504 loans, but they will generally be for smaller amounts and shorter terms.