SBA loans are often the final push start-ups need to open their doors. In fiscal year 1998, nearly $11 billion in long-term credit and other financial assistance was provided to more than 49,000 small businesses through the SBA's network of participating banks, nonbank lenders, certified development companies and SBA-licensed companies.
The SBA itself doesn't make loans. Rather, it offers private lenders a guarantee on loans made to qualified small businesses. If the borrower fails to repay the loan, the lender can usually obtain 75 to 80 percent of the outstanding loan principal from the SBA. Of interest to entrepreneurs seeking start-up financing are the following programs:
- Microloans. Small businesses needing up to $25,000 in start-up or expansion funds may obtain short-term (up to six years) microloans through nonprofit groups, such as local economic development organizations or state finance authorities approved by the SBA. Loans are handled much like a line of credit and are used to buy machinery, equipment, furniture, fixtures, inventory, supplies and provide working capital. Funds are intended to be dispersed with close monitoring of the recipient. A self-employment training program may accompany the loan.
- Low Doc. This program, which features minimal documentation and quick response time, expedites the processing of loans of up to $150,000. Terms are set by the private lender. About 90 percent of applicants are approved, usually in three days.
- High Doc. For loans in excess of $100,000, Section 7(a) provides for loan guarantees of up to $750,000 or 75 percent of the loan amount, whichever is less. Response time ranges from a week to several months. Loans may be used to start a new business or to assist in the operation, acquisition or expansion of an existing business. High Doc loans are often used to cover the costs of working capital; the purchase of inventory, machinery and equipment; and the construction, expansion and rehabilitation of business property.
Other loan programs apply to small, disadvantaged companies. For further information on SBA loan programs or to find the SBA office nearest you, call (800) 8-ASK-SBA.