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Whether you’re starting up a new small business or expanding a pre-existing one, understanding different types of SBA loans is key to your success. Every small business is unique and has certain needs that should be met by the right loan. It is recommended to review the needs of your business before looking at what loans are available. Once you know what your business needs, understanding what loan will fit best comes easier. However, it can still be a challenge to know what each loan can offer. Listed below are different SBA loans and how you can gain some perspective on which loan may work best.
The Small Business Administration (SBA) was founded to help small businesses thrive. Even though the SBA is not a direct lender, they remain one of the top places to look for loan programs. This is all thanks to their ability to connect small business owners with lenders, even if their credit score is lower than average.
The SBA 7(a) Loan Program is the most popular SBA loan, offering financial support for various business needs, including working capital, equipment purchases, and real estate acquisition. Businesses can obtain loans of up to $5 million, making it a flexible financing option for growth. The terms are generally favorable, with competitive interest rates and long repayment periods. These loans are ideal for businesses looking for general financial support rather than a loan targeted toward a specific purpose. Since the SBA guarantees a portion of the loan, lenders are more willing to work with businesses that might not qualify for traditional financing.
The SBA 504 Loan Program is specifically designed for businesses looking to purchase fixed assets such as commercial real estate and heavy equipment. This loan structure includes three parts: a lender providing 50% of the funding, a Certified Development Company (CDC) covering 40%, and the borrower making a 10% down payment. One of the main advantages of the 504 loan is its long-term, fixed-rate financing, which helps businesses manage costs efficiently. It is particularly beneficial for businesses investing in expansion or infrastructure improvements. This program allows businesses to secure large amounts of capital at lower interest rates compared to traditional loans.
The SBA Microloan Program provides small loans of up to $50,000 to help startups and small businesses with working capital, inventory, and equipment purchases. These loans are typically offered through nonprofit intermediary lenders who also provide technical assistance to borrowers. Since microloans are smaller in size, they are ideal for businesses that need a financial boost to get off the ground or sustain early-stage operations. However, these loans often require a personal guarantee and some form of collateral. Despite the smaller loan amounts, they can be a crucial resource for entrepreneurs who struggle to access traditional financing.
The SBA Express Loan Program is a streamlined version of the 7(a) loan, designed for businesses that need quicker access to funds. With loan amounts up to $500,000, this program offers a simplified application process and faster approval times compared to other SBA loans. The primary advantage is that businesses can secure funds within a few days rather than weeks, making it a great option for those needing immediate working capital. While interest rates may be slightly higher than standard 7(a) loans, the speed and convenience often outweigh this drawback. Businesses looking for short-term financial solutions can benefit significantly from the Express Loan Program.
The SBA Disaster Loan Program is designed to help businesses recover from declared disasters by providing low-interest loans for physical damage and economic injury. These loans cover damages to property, equipment, and inventory and can also help businesses cover operational expenses during recovery. They offer long-term repayment options with lower interest rates, helping businesses stabilize financially after unforeseen disasters. The application process requires proof of disaster-related damages, and funds must be used for repair and recovery purposes. This program is essential for businesses located in disaster-prone areas, ensuring they can rebuild and continue operations.
Depending on what a client wants to fund with an SBA loan, there are different types of programs for which they may qualify.. Thus, each different type of SBA loan has different requirements and benefits that come with it. To know which works best, you must compare your business needs to what the loan itself entails. Below is a table showing different types of SBA loans, as well as key information to know about them. [table id=7 /]
Before applying, ensure your business meets SBA loan eligibility criteria. Your business must be for-profit, operate in the U.S., and meet the SBA’s size standards. Lenders will also assess your financial history, business plan, and ability to repay the loan. Reviewing these factors in advance helps you avoid delays and improve approval chances.
Each SBA loan serves a different purpose, so selecting the right one is crucial. The 7(a) loan is best for general business needs, while the 504 loan suits real estate and equipment purchases. Microloans help startups, and disaster loans aid recovery efforts. Identifying the most suitable loan ensures you receive the necessary funding without unnecessary complications.
Having the required paperwork ready can expedite the loan application process. You’ll need financial statements, tax returns, a business plan, and a detailed loan purpose statement. Accurate and complete documentation reassures lenders of your credibility and readiness. Organizing these materials in advance prevents last-minute complications.
Not all lenders offer SBA loans, so it’s important to choose one with experience in SBA financing. Working with seasoned lenders like Avana Capital can simplify the process and provide personalized guidance. Research different lenders, compare terms, and build a relationship with the right financial partner. A knowledgeable lender can make the loan process smoother and more efficient.
Once you’ve gathered your documents and chosen a lender, complete the application process. Your lender will review your submission, request additional details if needed, and forward it to the SBA. This process may take several weeks, so staying proactive and responsive is essential. A well-prepared application increases your chances of approval.
After approval, your loan is finalized, and funds are disbursed. Use the loan as intended—whether for expansion, equipment purchases, or working capital. Managing repayments responsibly and keeping track of loan terms ensures financial stability. Proper use of funds can lead to business growth and potential future financing opportunities.
These two loans are the most common types of SBA loans for small businesses. This is why determining which of the two loan programs is right for a business takes a comparison between the two. However, there is still a lot of information to absorb to choose your loan wisely.
This is where AVANA Capital and its team of industry professionals can assist you. With almost 70 years of combined experience, AVANA Capital’s team guides you through the process of learning about different types of SBA loans. AVANA Capital also assists in taking out the loan itself and makes the overall process much easier. Your loan application can receive pre-approval within 24-hours (especially when using their loan builder form). In addition, AVANA Capital provides competitive rates, allowing a loan to be paid off over 20-30 years. To make the right decision on what type of SBA loan is right for you, contact AVANA Capital today. You can also call them at 1-877-850-5130, and one of their specialists will assist you shortly.
For more information about types of SBA loans, contact AVANA Capital or call them at 1-877-850-5130.