Loan Options For Small Businesses

The SBA’s two most popular loan programs are the 7 (a) and 504 Loan Program.

The 7(a) is the SBA's most popular loan program. As a small-business owner, you can get up to $750,000 from your local 7(a) lender, backed by a partial guarantee from the SBA 7(a) loans are typically used for working capital, asset purchases and leasehold improvements. All the owners of a business who hold an ownership stake of 20 percent or more are required to personally guarantee these loans for small businesses.

Once your l ender decides on 7(a) money and if you're borrowing less than $150,000, you may need the LowDoc program. A Lowdoc loan application is a one-page form; your application is on one side and the lender's request to the SBA for the guaranty for your loan is on the other. The SBA responds to Lowdoc applications within 36 hours.

The 504 loan program provides long-term, fixed-rate loans for [Pullout:

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] small businesses to acquire real estate or machinery or equipment for expansion or modernization. Typically a 504 project includes a loan secured from a private-sector lender with a senior lien, a loan secured from a CDC (funded by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the total cost, and a contribution of at least 10 percent equity from the borrower.

Like the 7(a) program, the 504 program is restricted to small businesses with less than $7 million in tangible net worth and less than $2.5 million in net income. This program tends to exclude most service businesses that need to purchase land or equipment. Personal guarantees are also required for 504 loans.





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