mortagesandforeclosures

by Benedict Yossarian

Even though putting up a small business usually requires less funding compared to establishing a medium-sized company or a corporation, it is still a complex process. If you are looking to establish a small start-up, accessing financing help through the Small Business Administration (SBA) may be the right course for you.

Although the SBA technically doesn't provide loans, it acts as a guarantor to lenders so that they may extend financial help to small businesses that have a hard time accessing loans through the usual channels.

Micro-loan Program

Under the Microloan Program, the SBA provides funding to non-profit intermediary lenders based in the community. The lenders then use this funding to provide loans to applicants who satisfy the eligibility requirements. Under this program, small business owners can borrow up to $35,000 but a typical loan usually amounts to $13,000. You can pay for the loan for six years but this period varies depending on the preference of the lender, how much you borrow and what you plan to use the money for. Interest rates imposed on the loans may go from eight to thirteen percent.

Applying for a microloan means meeting certain qualifications. Some moneylenders, for instance, require a written guarantee and collateral from borrowers. You may also need to take a training course given by the lenders. This is actually for your benefit, since you may learn new skills for running your business.

7(a) Loan Program

Under the 7(a) Program, the SBA provides a guarantee to lenders so that they share the potential risks associated with lending the money to borrowers. The lenders are the one who make the final decision as to whether to award the loan or not. A guarantee from the SBA does not mean you will automatically get the loan. Once you do qualify, however, you can borrow up to $750,000.

Qualifying for this type of loan also means meeting tight requirements. Such criteria include:

- Business size requirements

- The kind of business you'll be involved in

- Areas the funding will be used for

- Financial feasibility of the business

There are several types of loans under the 7(a) program. One of these is the SBA Express where borrowers can access up to $350,000 in loans. The SBA's turnaround time for this type of loan is 36 hours.

The Community Express Loan is another important type of loan under the Program which is suited for businesses that are being set up in communities where they are most needed. Under this arrangement, borrowers can avail of loans of up to $250,000, and with technical training assistance from the SBA.

CDC or 504 Loan Program

This is a special kind of loan that the SBA has certain tight restrictions. For instance, you can't take out this loan for working capital, refinancing, or paying off debts. But you can use this loan in the following ways:

- In buying land

- Construction or improvement of facilities

- To provide parking facilities

- To buy equipment and machinery

- Landscaping

About the Author:

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