Small business loans, also called micro loans, can be availed to finance a new or an existing project. As the name itself suggests, these loans are meant for small enterprises. The maximum limit of a loan under such schemes is normally around $30,000-$35,000 and below. They can used to start up a new business or for the promotion of a recently established small business.
Advantages of Small Business Loan
Small business loans can be utilized to purchase real estate, which can be used as premises for the business and also for the purchase of furniture, machinery, fixtures, and other equipment. They can also be spent for construction, leasehold improvements or renovation of the business and for flooring of the inventory. These loans can also be used as working capital to run the enterprise.
Availability of Small Business Loans
The US Small Business Administration or the SBA provides funds to non-profit associations of lenders who in turn disburse these loans to the budding small entrepreneurs by giving the credit a local orientation. Small business loans have a shorter term than the big loans, which are generally provided through mortgage and have a loan term spanning up to 30 years. The loan term for small business may be up to 5 or 6 years depending on the discretion of the local lenders. Small business loans too are provided against some kind of collateral and the personal guarantee of the business entrepreneurs. Another condition for obtaining small loans is that the business owners need to comply with certain business training and planning requirements before their loan application can be considered.
SBA-7A Government Small Business Loans
There are other loan plans under different names and schemes as well. For example, there are SBA-7A government small business loans. Under this scheme, the small business loans are arranged by the government under a wide variety of guarantee programs to the business men who cannot otherwise qualify for loans on reasonable terms. In such cases, the commercial lenders provide the funds for the loans and the SBA guarantees them. This is because the SBA does not possess the required funds for direct lending or grants to the businessmen.
According to the plans under SBA Loans under 7-A, there is no limit set on the amount of loan that may be required by the businessmen. Also the loan term can be extended up to a period of 25 years.To qualify for loans under the scheme, a businessman must have invested in his business some amount of money from his own resources. The premise here is that with his own stake in the business, the entrepreneur will put in all his efforts to ensure that the enterprise is successful. The second condition to qualify for this loan is that the borrower should have a plan with details regarding how he pans to run his business to optimize the productivity level and make profits so as to repay the loan on monthly basis and also meet his personal needs. The third condition is that the businessman should enjoy a good credit rating. His track record in paying back his loans forms an important criterion for accepting his application for loan.
SBA 504 Loan Program
Besides these, there are various plans under the Development financing with the SBA 504 loan program. This program provides the business entrepreneurs with a long term, fixed rate financing for major fixed business assets such as land, buildings, street improvement, car parking, landscaping, modernizing and renovating existing facilities, purchasing long term machinery, equipment and so on. The SBA works with the Certified Development Companies or the CDCs and private lenders to provide the small business loans. The loan from private lenders covers 50% of the project costs. There is also another facility provided by the Certified Development Companies, which pay loans for another 40% of the project cost for which the SBA provides a 100% guarantee. An entrepreneur can thus get a combined loan-to-value ratio of 90%.