Small Business Administration Loans
Since 1953, the Small Business Administration (part of the Department of Commerce) has helped entrepreneurs get capital to start and expand their businesses. The SBA doesn't make grants to businesses, but rather provides loan guarantees to encourage participating banks to make loans to small businesses.
The SBA can be an attractive source for capital. However, as with many government programs, the process is not easy. There are numerous requirements for applying for a SBA loan, and if you get one there are some additional reporting requirements. If you are considering applying for a SBA loan, be sure to plan for at least 12 to 18 months for the process. Proper documentation and properly completed applications can shorten the process somewhat. Working with a bank or other lender that is familiar with the SBA process can also make the process easier.
The most common type of SBA program - 7(a) Guaranteed Loans
The maximum the SBA will guarantee is $1,500,000 and therefore the maximum amount of the loan is $2 million. The interest rate on SBA 7(a) loans is tied to the prime rate. For loans with a term of 7 years or more the rate can be up to 2.75% above prime. For loans shorter than 7 years, the rate can be up to 2.25% above prime.
Allowable uses of loan proceeds:
Applying for a SBA loan requires completing various documents and may require collateral or personal guarantees. Lenders may also charge some origination fees.