SBA Loan Basics

Securing financing for a small business without years of experience can be challenging. Even if you have a solid business plan, credit score and other application features, you may experience a rejected conventional loan application. Learn more about SBA loans, compare common types and find out how you can use one to secure the working capital, real estate or equipment you need.

Types of SBA Loan

There are several types of SBA loan options to choose from, but most small business needs can be met with either SBA 7(a) or SBA 504 loans. The most common option is a 7(a) loan. These can be used to invest in property, purchase equipment or make payroll on time. Just like a conventional bank loan, these loans have flexible terms and few spending restrictions.

A 504 loan is more specialized and is used to purchase a piece of equipment or real estate. They are usually backed in part by the asset you’re purchasing. Compare a 504 with a 7(a) to see if it has the features you need to secure your large asset for your business.

Finally, there are specialized options like microloans and disaster relief funding. These unusual loan options are reserved for special situations and may not apply for most businesses in most cases.

Benefits of Small Business Loans

These loans are backed by the Small Business Administration and specifically designed for businesses that are trying to grow. Enjoy terms that can compete with traditional loan options. Long-term loans with low interest rates and high loan limits can give your small business the boost it needs to get through a slow season or expand aggressively through a busy season.

Common Uses

SBA loans are as versatile as the businesses that apply for them. Depending on your current financial needs, choose to use your financing however you need to achieve your business plan. Some businesses use a loan to cover operating expenses for a few months or years while they are still growing. Other businesses choose to invest in essential assets, such as heavy machinery and real estate.

How To Apply

You’ll need to fill out an application for the Small Business Administration and your chosen loan provider, so applying for these loans can be more time consuming than conventional loans. If your business has already been rejected for a conventional loan or if your application doesn’t meet minimum criteria, SBA options may be just what you need to keep your business growing.

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