Q. Should I get a loan from the SBA?
A. You can’t get a loan from the SBA, but you can get a SBA loan guarantee. Come again?
Well, first off, the SBA does not loan money, so you can’t get a loan from the SBA.
The SBA guarantees a large portion of the loan made by the bank. This means you have to negotiate two sets of paperwork and get two approvals before you get funded.
Q. What is the benefit of a SBA loan guarantee?
A. An SBA guarantee gives the bank the opportunity to fund a loan that doesn’t meet their commercial requirements. The SBA guarantees the bank will receive their funds even if the borrower, you, defaults on the loan. The guarantees range from 50 to 90% of the loan amount.
Q. What can I use the money for?
A. The SBA offers several loan guarantee programs but the most common are:
- 7A for working capital – maximum loan $2MM with a loan term of 10 years
- 504 for acquiring real estate or equipment for your business – maximum loan $4MM with a term of 25 years
- Microloans, which are small short-term loans of $35,000 or less
NOTE: These programs are continually being updated in terms of loan amounts, interest rates, fees and the amount of the loan the SBA will guarantee, so to get the latest skinny, use the following link: http://www.sba.gov/financialassistance/borrowers/index.html
Q. What else does SBA offer for the small business owner?
A. In addition to providing guarantees for loans made by private or public institutions, SBA funds counseling and training for the benefit of small business owners through resource partners. All counseling is free and the training is either free or low-cost.
SCORE – Service Core Of Retired Executives
SBDC – Small Business Development Centers
WBC – Women’s Business Centers
Click on the link below to get more information on these resource partners and to find one in your area. http://www.sba.gov/services/counseling/index.html
Caveat: You may find that much of the counseling is provided by people who have never started or owned a small business. They may have experience in corporate America, training or education, but that is very different from running your own small business. That doesn’t mean you can’t get good advice and meaningful help, just know that much of their knowledge comes from observing others, not from the experience of executing their own advice in the field.