U.S. Small Business Administration loans are federal guaranteed if the borrower fails to repay, making the loans attractive for lenders. However, in order to qualify, borrowers must first be turned down for a commercial loan. Here are brief summaries of five popular SBA loans:
-7(a): Primary loan program requires a business to fall within certain size criteria, such as no more than 1,500 employees for manufacturers. Maximum loan is $2 million. The SBA guarantees 85 percent of the value for loans under $150,000 and 75 percent over that. Most loans require collateral, including personal guarantees from principal business owners. Borrowers can use the loans to expand facilities, buy equipment, build or buy buildings and other purposes. Interest rates are 2.25 percent to 2.75 percent over prime.
-Express Loan: Loans up to $350,000. Lenders can use their own forms and procedures. The SBA guarantees up to 50 percent of the loan value. Loans under $50,000 do not require collateral. Loans can be used for working capital, equipment, small real estate purchases.
-Community Express: Designed to provide streamlined loan services and management and technical assistance to targeted small businesses, primarily minority and women-owned. Loan cap of $250,000. Lenders allowed use their own loan evaluation procedures.
-504 loan: Provides long-term, fixed-rate, mortgages for acquisition and/or renovation of land, buildings and major equipment. Backed by 100 percent guaranteed bond sold to investors. Loan cap of $4 million. Borrower finances 10 percent through down payment with repayment over 10 to 20 years. Lender finances 50 percent; SBA finances remaining 40 percent.
-Microloan: Provides loans of up to $35,000 for working capital, equipment, etc. SBA provides funds to non-profit intermediaries which then make loans directly to businesses. No federal guarantees. Interest rates negotiated between borrower and intermediary.
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