What is SBA and what kind of loans does it offer to small businesses?

Introduction to SBA.

SBA is an acronym for United States Small Business Administration. SBA was established in the year 1953 under Small Business Act of July 30, 1953 passed by United States Congress. The basic functions and stated concerns of the SBA are to protect, assist, counsel and aid small businesses wherever and however possible under the provisions of the law.

SBA assists small businesses in ways as listed here below out of many of its chartered stipulations. Sample a few of them here.
• Disburses direct business loans
• Guarantees bank and other lender loans
• Issues loans to disaster victims
• Helps small businesses win government procurement contracts
• Provides management and technical advices and training
• Helps them get government contracts and sale of surplus property.
In a nut shell, SBA helps small businesses and families tide over disasters in its mission to strengthen and maintain national economy.

Common types of Loans from SBA for small businesses.

SBA loan programs help deserving small business get financing when they may not be eligible through normal channels if they approached independently. The following common types of loans that are assisted and guaranteed by SBA are made by local lenders and what are known as intermediary lenders. Each loan program is unique in its maximum limit, qualification and other aspects.
• Basic 7(a) Loan program
• Micro Loan 7(m) Loan program
• 504 Loan program, a Certified Development Company (CDC)
• EWCP. The Export Working Capital Program
• LowDoc Loan
• Capline Loan
• Natural disaster recovery loan

The Basic 7(a) Loan program is the most popular of the SBA loan programs yet. This is available for any business need and if you are looking out for a long term repayment plan, this is it. The loan amount needs to be decidedly used for sound business purposes such as real estate purchase or expansion or even renovation, working capital needs and machinery purchases amongst others. The loan term maturity is up to 10 years for working capital loans and for capital expenditure it is up to 25 years if it generates fixed assets, for obvious reasons. 7(a) loan is for start-up and existing small businesses and commercial lending institutions. This is delivered through lending institutions. Maximum limit is $150,000.00 under this program.

The short term and small amounts of loans come under the micro loans program 7(m). The loan extended in this scheme does not exceed $ 35,000.00. The basic condition of this program stipulates the borrower to use the loan proceeds to the purchasing inventory, furniture, fixtures, machinery and equipment or even working capital necessities. Both small businesses and day-care set-ups for children qualify for this loan. This is delivered through designated and experienced non profit lending organizations.

CDC, a 504 loan program is for small businesses needing brick and mortar financing. There are some features unique to this program. This program lends for real estate acquisitions, capital plant and machinery purchases and for expansion and modernization plans of a small business. This loan is essentially made by a private lender with lien and is 100 % funded by SBA secured debenture. If the loan is with a junior lien that covers just up to 40 % of the cost, it needs the borrower to contribute 10 % equity. The CDC loan distributors are usually the certified development companies as the name implies and there are a variety of such CDCs. The loan amount is to the tune of $ 5 millions and it comes with a repayment term of up to 5 years.

The other types of SBA loan programs are designated to help export working capital needs with a view to improve international trade volumes of the business. The LowDoc loan and CapLine loan are other popular types of SBA assisted loans. LowDoc is gaining popularity owing to its simple documentation procedures and log term repayment plan (up to 25 years for loans up to $150,000.00). The CapLine loan is designed to help small businesses tide over cash inflow fluctuations. Though the term of repayment appears to be small (5 years) for a loan of up to $2,000,000.00, it really saves companies from eventual cost over runs and loss of business.

The most important loan that SBA guarantees has a human face. This is not basically designed to save businesses but people struck by natural disasters. The recent example for this generous loan disposition can be seen in a NOV-27th press release by Federal Emergency Management Agency (FEMA). It urged people that sustained losses due to Hurricane Wilma to apply for assistance. SBA had pledged loans at lowest rates of 2.678 and 4.000 percent for different category people and kept the term up to 30 years.

Eligibility for SBA loans.

Prequalification: SBA analyzes loan requests of up to $250,000 before forwarding it to intermediary lenders. They are scrutinized for the applicants’ experience, credit, reliability and character rather than assets. The intermediary works with the potential borrowers to arrive at decision making under sound economic parameters like key financial ratios, credit and business history, and the loan request terms.

Here are some key criteria:
• You should be a For-Profit Organization
• Owned Independently
• Should not Exceed the Maximum cap-
o Manufacturing - though varies by industry
o Wholesaling - up to 100 employees
o Service - varies as per industry and revenue
• Real Estate (must be commercial)
• You must occupy at least 51% if you are buying a building Must occupy 60% if you are constructing the building

Requirements for the SBA loans.

The documentation that needs to be made along with the loan application:
• Business profile – A description of your business with ownership particulars, annual turn over, number of employees and years in business.
• Loan request – You should include information like how is the loan going to be used, the amount, the purpose etc.
• Collateral
• Business financial statements for three preceding years
• Personal financial statements of all who hold more than 20% stake in the business
• Income statement showing your profits and other key parameters
• Balance sheets for past three years
• Cash flow statement and statement of receivable plus payable amounts giving the break up in stages of 30 days and beyond.

The basis of judgment is the strength and accuracy of your statements and up-to-datedness.

Online SBA loans.

SBA provides online loan counseling to small business owners on topical questions that can vary from a Veteran’s business program to entrepreneurship and innovative strategies for growth etc. Hosts of online counseling are experts in various aspects of small business matters.

Epilogue.

It is not when you need a loan that you approach SBA for SBA means many things to many people. Right from the concept to materialization of your dream business, SBA is with you. Believe me it is the fructification of the mission statement for them at SBA.

The author Alevoor Rajagopal had been writing on technical matters and in this avtar he gave up tags that confine to particular genre of writing. Rajgopal is a mechanical engineer and served the pharmaceutical industry. Oflate he has been putting his efforts in to creative art and healthcare writing. Here he looks up at options available to put life back on track. He can be contacted at http://alevoorrajgopal.blogspot.com He is also writing at: http://vitamineh.blogspot.com

Article Source: http://EzineArticles.com/?expert=Alevoor_Rajagopal

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