Despite what you might see on late-night infomercials or some websites, none of the SBA's loan programs involve free money, government grants or no-interest loans. In fact, the SBA doesn't even lend funds directly to entrepreneurs--you'll need to strike up a relationship with a loan officer at your local bank, credit union or nonprofit financial intermediary to access the programs.

But once you do, there's an array of resources aimed at getting you the capital you need to start or expand your small business. Last year, more than $50 million in SBA loans were being provided per day to U.S. small businesses. For this month's column, I thought I'd review the latest descriptions and eligibility criteria for the SBA's three most popular loan programs.

7(a) Loan Program
The 7(a) is the SBA's most popular loan program. As a small-business owner, you can get up to $750,000 from your local 7(a) lender, backed by a partial guarantee from the SBA. Note that the SBA is not lending you any money directly. What they are doing is making it less risky for a local lender to provide you with financing. 7(a) loans are typically used for working capital, asset purchases and leasehold improvements. All the owners of a business who hold an ownership stake of 20 percent or more are required to personally guarantee the loan.

Once your lender decides that 7(a) money is what you need, you'll probably start hearing the names of the different 7(a) programs. For example if you're borrowing less than $150,000, you may be headed toward the Lowdoc program, which was created in 1993 to reduce burdensome paperwork. A Lowdoc loan application is a one-page form; your application is on one side and the lender's request to the SBA for the guaranty for your loan is on the other. The SBA responds to Lowdoc applications within 36 hours.

The SBA Express is a program for lenders with a good SBA-lending track record. It's aimed at getting money--in this case, as much as $250,000--quickly into the hands of entrepreneurs. Based on the success of the SBA Express program, the SBA initiated CommunityExpress, specifically designed to improve access to capital for low- and moderate-income entrepreneurs and to provide both pre- and post-loan technical assistance.

Eligibility: The eligibility criteria for the 7(a) program are the broadest of all the SBA loan programs, but they're still quite restrictive for startups and businesses related to financial services. See this page on the SBA's website for a list of the types of business that are eligible. In general, all SBA programs are targeted at small companies (that is, businesses with less than $7 million in tangible net worth and less than $2.5 million in net income), but typically most banks won't lend to startup businesses that don't have two to three years' worth of financial statements and some owner's equity in the business. Some banks will allow you to use money from relatives as part of your equity, but you're required to formalize these small business loans with a repayment plan that's subordinate to the bank debt.

504 Loan Program
The 504 loan program is intended to supply funds for asset purchases, such as land or equipment. Typically, the asset purchase is funded by a loan from a bank or other lender in your area, along with a second loan from a certified development company (CDC) that's funded with an SBA guarantee for up to 40 percent of the value of the asset--which is generally a loan of up to $1 million--and a contribution of 10 percent from the equity of the borrower. This financing structure helps the primary lender--the bank--reduce its exposure by relying on the CDC and the SBA to shoulder much of the risk.

Eligibility: Like the 7(a) program, the 504 program is restricted to small businesses with less than $7 million in tangible net worth and less than $2.5 million in net income. However, since funds from 504 loans can't be used for working capital or inventory, consolidating or repaying debt, or refinancing, this program tends to exclude most service businesses that need to purchase land or equipment. Personal guarantees are also required for 504 loans.

7(m) Microloan Program
The Microloan program is presently under budgetary review, and the political winds aren't currently blowing in its favor. The program is intended to provide "small" loans of up to $35,000 that can be used for a broad range of purposes to start and grow a business. Unlike the 7(a) program, the funds to be loaned don't come from banks; rather, they come directly from the SBA (now you know why it's unpopular with the folks in charge of the budget) and are administered to business owners via nonprofit community-based intermediaries. To find the name of an intermediary micro-lender in your area, visit this page of the SBA's website.

Eligibility: The Microloan program is startup friendly. All new businesses are eligible to apply. Although the maximum loan amount is $35,000, the average loan is approximately $10,000. The only catch is that Microloan borrowers typically have to enroll in technical assistance classes administered by the micro-lender intermediaries. For some entrepreneurs, this is a very helpful resource that provides cost-effective business training. Others, however, perceive it as a waste of time, although it's a necessary pre-condition to getting a Microloan.

Although I promised reviews of just the three top SBA loan programs, I didn't want to fail to mention two other special purpose loan programs targeted at serving particular types of businesses. The Export Working Capital Program provides short-term working capital to small, export businesses, and the DELTA program provides both financial and technical assistance to help businesses dependent on defense installations transition to civilian markets. You can log on to the SBA's website to learn more about these two programs.

The long and short of it is, if you need small-business loan capital, there's probably an SBA program out there for you.