Everything You Need To Know About Securing Small Business Loans.

AuthorSteinbrech, Amy

The Small Business Administration offers a federal loan program that can help your business get off the ground. Here's what you need to know.

Whether you are a budding entrepreneur looking for a hand up, or a well-established business needing additional funding resources, there are several loan programs offered by the Small Business Administration (SBA) to meet your needs. The SBA is a federal loan program that does not make loans directly, but it facilitates the process by working with participating banks and credit unions. This reduces the risk for lenders and makes it easier for small businesses to get loans.

SMALL BUSINESS LOANS & THE TERMS YOU SHOULD BE AWARE OF

There are many issues for small business owners to consider before applying for a loan, such as interest rates and repayment terms. Knowing the basics of SBA-guaranteed loans is a great first step. Here are some of the more common terms:

7a Loan. A 7a loan is the most common type of loan backed by the SBA. These loans are made by private lenders, and the loan proceeds can be used for a variety of needs, such as equipment and inventory purchases, working capital, and debt refinance. The SBA guarantees between 50 percent and 90 percent of the loan for the lender. Small business owners can apply for amounts up to $5 million, with terms ranging up to 25 years.

CDC/504 Loan. Certified Development Company

(CDQ/504 loans are typically used to finance the purchase of real estate and equipment or to improve an existing property. In Utah, there are two CDC's that offer these loans: Mountain West Small Business Finance and Utah CDC. For a typical project, a bank or credit union will finance 50 percent and the CDC will finance 40 percent. The borrower will contribute 10 percent (or possibly up to 20 percent when financing a special-purpose property for a new business). The CDC's loan, which may be up to $5 million, has a term of 20 to 25 years at a fixed, favorable interest rate.

Microloans. For these loans, the SBA provides money to nonprofit organizations who lend to small businesses at their own discretion. Loans are granted up to $50,000 with a maximum term of seven years. Rates are variable at four to seven percent above the prime lending rate.

"It is beneficial to first sit down with a loan officer who can ascertain your specific business needs. They can then fit you for the best loan product customized to your needs," says Roger Christensen, SVP of Marketing and Communications and...

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