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DQ News: 2 Programs You Should Know About to Get a Small Business Loan

With Wall Street closing its purse strings to even the largest businesses, the effect has trickled down, as community banks have become increasingly stringent in their lending standards.

So, how can small business owners access the credit that they need?

The answer: Get informed.

Federal Small Business Loan Programs

There are a number of federal and state programs available to small business owners which many local bankers are not knowledgeable about.

SBA 504 Loan

The first is the SBA 504 loan program. This program is designed to assist small business owners looking to purchase fixed assets (think buildings, machinery, equipment, etc.). This program offers a 20-year fixed rate and amortization, as well as an owners equity injection of as little as 10%.

Business owners could get a 5.5% rate over 20 years with $20,000 down on a $200,000 building purchase. The one caveat is that the building has to be occupied greater than 51% by the small business seeking funding.

SBA 7a Loan Program

The second program is the SBA 7a program. This program basically does anything not allowed in the 504 program.

Allowable uses include:

• debt refinance
• working capital
• business purchases
• etc

The rate is variable (right now about 6%) but the big incentive with this is to the banks.
A bank actually has to approve the loan even though it is guaranteed by the SBA. However, if the small business owner arrives informed, letting the bank officer know that she would like to use this program, the SBA guarantees 75% of the loan, which is a big incentive for bankers to use the program with small businesses.

Do Your Homework

Reading up on the SBA programs and having your information ready when you approach a local bank can make all the difference.

About the Author: Jim Noone is a partner at iBankr.com. iBankr.com is a business sale marketplace that allows small business owners to follow a checklist method to sell their business. Creating an account and using this ten-step method typically increases the success rate by 5x compared to just listing a site for sale. The site also has a hiring marketplace that allows small business owners to hire professionals for specific tasks like getting financing, marketing the business for sale, finding buyers, or closing the deal or to handle the entire sale process. The site’s most popular feature is the free business value calculator located at Business Value Calculator.

Photo Credit: jferzoco

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