The Skinny on SBA Financing

by Kevin Casey on November 3, 2010
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Last week’s recap of the top U.S. Small Business Administration lenders in 2010 covered data from the federal agency’s flagship program, the 7(a) loan, but that’s far from their only option to help fund your business. We thought it would be a great time to provide a quick breakdown of what else they offer.

To be clear, SBA-backed financing isn’t your only potential source of capital, nor should it necessarily be the first place you turn. In fact, 7(a) loans are contingent on having already been turned down for a traditional commercial loan. In the days ahead, we’ll look at a variety of non-SBA funding sources such as credit unions, community development organizations, and other lenders.

In the meantime, even though recent signs point to rising small business borrowing — generally considered a positive economic bellwether — SBA financial programs offer significant opportunities for business owners and would-be entrepreneurs after other channels have already said no. Some of these programs also received a big boost from the Small Business Jobs Act recently signed into law and would appear poised for growth in the new federal fiscal year, which began Oct. 1.

Here’s a snapshot of SBA guaranteed loan and other funding programs:

7(a) Loan Program

  • What it is: The SBA’s primary loan program for general business purposes. There are actually four types of 7(a) loans: Express, Export Loan, Rural Lender Advantage, and Special Purpose.
  • Who it’s for: New and existing small businesses.
  • How much?: Up to $5 million — a recent increase from $2 million.

CDC/504 Loan Program

  • What it is: Long-term, fixed rate loans for the purchase of real estate and other major fixed assets.
  • Who it’s for: Small businesses.
  • How much?: This one gets a bit tricky. The SBA will guarantee up to $5 million, and up to $5.5 million for manufacturers. But the actual amount is dependent on job creation and/or retention related to the purchase — the more jobs the project creates or retains, the more money that can be guaranteed.

Microloan Program

  • What it is: Smaller, short-term loans.
  • Who it’s for: Small businesses and non-profit child-care centers needing financing and technical assistance.
  • How much?: Up to $50,000, a bump from the previous $35,000 limit.

Disaster Assistance Loan Program

  • What it is: Low-interest loans to assist recovery from declared disasters.
  • Who it’s for: Homeowners, renters, businesses of all sizes, and most private non-profit organizations.
  • How much: Varies significantly, from $40,000 for personal property up to $2 million for businesses.

Bonding Program

  • What it is: Surety bonds — an instrument between a contractor and project owner, guaranteed by a third party (the SBA) in the event that the contractor defaults on the obligation.
  • Who it’s for: Contractors.
  • How Much?: Up to $5 million, and up to $10 million for certain federal contracts.

Venture Capital

  • What: Equity investments. (Or, in plain English: Money in exchange for an ownership stake in the business, often including an active role in management.)
  • Who: Early stage entrepreneurial companies, usually with high-growth potential.
  • How Much?: Varies.

Keep in mind that the SBA has a host of specific guidelines and rules for each of these programs — be sure to read the fine print.

Kevin Casey is a business writer for Intuit and is passionate about solving small business problems.

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