SBA 7(a) Loan Programs

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You started with a dream and from there you formed a business plan, developed products or services, and even found a site for your new business. There’s only one thing left that you need: Money.

In today’s environment finding the financing you need to get your business off the ground is tough. Tighter lending standards have banks asking more questions and going over business plans much more closely.

If, because of lack of credit worthiness, you can’t obtain financing through more traditional loan programs like bank loans, the United States Small Business Administration may be able to help. The SBA doesn’t make loans but in the most basic sense, they will act as cosigners. They do this through their 7(a) loan program.

Here’s how it works. You, the perspective small business owner go to the bank of your choice and apply for a traditional loan. The bank reviews your application and if determine that it doesn’t qualify on its own, they contact the SBA. The SBA reviews the application and providing the perspective borrower meets SBA and bank requirements, the SBA issues a guaranty for a portion of that loan.

This guaranty assures the bank making the loan that if you, the borrower, default on your loan, the SBA will reimburse the bank for a percentage of their guaranty. You would still be obligated to pay back the loan but the bank doesn’t lose all of their money.

Remember, though, you must meet eligibility requirements through both the bank and the SBA. Your business has to be for-profit, fit the federal government’s definition of a small business, it must do business in the United States, it can’t be receiving financing from other sources, you must have the ability to pay back the loan, and you must prove that you have the expertise to be successful in your business and submit a business plan to prove it.

There are four types of 7(a) loan programs available that offer express responses of no more than 36 hours . One is a general express loan that covers most types of businesses, another is a loan for perspective businesses 51% or more owned by veterans or members of the military community, and the community express loan that offers incentives to those people opening a business in areas of the country that are defined as distressed.

There are other types of 7(a) loans available that assist with small businesses that are primarily exporters, those businesses that are opening or operating in rural areas, and special purpose loans for business that may have been impacted by NAFTA. These loans are not classified as express loans and may take more time to process.

Qualifying for SBA loans means that you first must file with state and federal agencies. Business incorporation services can help you to streamline the process at a fraction of the price that you would be charged by a CPA or attorney.