Contrary to popular belief, the Small Administration (SBA), a federal government agency, does not normally make loans directly to small businesses. Instead, the SBA acts as a guarantor against risk for banks and other lenders to offer loan funds by agreeing to pay back some of the loan if the borrower defaults. While the SBA is an excellent source of general information about starting or expanding your business, if money is what you seek, go directly to your local bank or lender to start the process. They will have the forms you need.
There are three separate programs a small business owner might consider if he finds himself in need of working capital, each designed to address a separate situation. In no particular order, they are:
1. Basic 7(a) Loan Program: This is the one to look for if you want to start a small business or already have one but need general purpose money to keep the ball rolling. This is the most used loan program available that is backed by the SBA. Qualified borrowers receive a quick turnaround decision on their application, normally within 36 hours.
2. CDC 504 Program: This loan program is for established, growing businesses who need a steady source of long-term, fixed rate financing for acquisition or improvement of major assets like land, buildings, or who find themselves in need of major equipment for expansion. As a Certified Development Company (CDC), if you qualify for financial assistance under the CDC Loan Program, the SBA will help you locate private, non-profit foundations looking to provide money to improve a community’s economic base.
3. Microloan Program: The SBA microloan program operates a bit differently and does actually provide funds indirectly to qualified small businesses, up to a limit of $35,000. Small or start-up businesses wishing to access this program still should approach their local lender because all approval decisions are made at the local level – SBA merely provides money for local lenders to distribute.
There you have it. A nice, simple description of what the Small Business Administration does, and more importantly, does not do. As you can see, your time would be better spent approaching a local bank who works with the SBA rather than wasted chasing your tail in circles trying to tap into the agency directly.
Prospective small business owners – good luck!
The Young Wealth Team
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