According to SBA.gov, the U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns, to preserve free competitive enterprise and to maintain and strengthen the overall economy of our nation. The SBA helps Americans start, build and grow businesses. Through an extensive network of field offices and partnerships with public and private organizations, the SBA delivers its services to people throughout the United States, Puerto Rico, the U. S. Virgin Islands and Guam. They have delivered millions of loans, loan guarantees, contracts and provided counseling sessions to help small businesses grow.
The SBA doesn’t make direct loans to small businesses but rather they set the guidelines for the loans through lenders. The SBA guarantees that these loans will be repaid which eliminates some of the risk to the lending partners. When a business applies for an SBA loan, they are actually applying for a commercial loan, structured according to the SBA requirements with an SBA guaranty. SBA-guaranteed loans may not be made to a small business if the borrower has access to other financing with reasonable terms.
The most popular SBA loan for business owners is the 7A and it has a maximum loan amount of $5M. The capital can be used for equipment, real estate and working capital. In 2012, the average 7A loan amount was $337,730. Other loans include: Express SBA Microloan Program, the CDC 504 and Disaster Loans.
The interest rates are very competitive with the SBA 7A Loans. The rates are currently under 7%, amortized over 10 years and have no prepayment penalties. They typically take under 60 days to fund and you will have to locate an SBA lender. The SBA has District Offices that will direct you to the various commercial lenders in your area that will provide assistance for your loan processing. If you are borrowing under $150K, there are no fees if the loan was originated after October 2013.
If you are buying a franchise, you can confirm if the franchisor is registered with the SBA. If they are not, most banks are not willing to assume the risk of the startup. The SBA registry will identify which franchises are listed, making funding much easier for the consumer if they are beginning a new business. As knowledgeable franchise consultants, we can help you through this process.