SBA is an acronym for Small Business Administration. It is a federal agency that deals in offering financial help to small businesses. SBA works through the banks and financial institutions across the country. The primary difference between a normal business loan and an SBA loan is that the latter is backed by the government. The former is entirely subjected to the prerogative of the bank. SBA loan issued by banks and financial institutions has government support which allows the rates of interest of such loans to be quite reasonable. More importantly, the chances of getting an SBA loan are much higher as banks or lenders don’t typically like to entertain every type of small business.
There are a few SBA loan types which you should know to figure out what would be ideal for you. Here are the SBA loan types and their differences to help you get started.
7a Term Loans
The most commonly opted for loan among all SBA loan types, 7a Term Loans are primarily meant for refinancing debt or for working capital. Small businesses can apply for up to two million and can choose a repayment term of seven to twenty five years. The rate of interest is desirably low due to the backing from the government. Such loans are backed by the government to the tune of 85% (maximum) of the loan amount.
CDC/504 Term Loans
CDC loans are ideal for procurement of equipment or development of fixed assets. The maximum limit of such loans is four million. The government backs up to 40% of such loan amounts and the borrower has to provide about 10% of the loan amount as collateral. CDC Term Loans have a slightly higher rate of interest than 7a Term Loans.
Microloans are quite varied in their nature. This is the only loan of all SBA loan types that doesn’t have any government backing. It is thus up to the lender to decide on the terms and criteria of the loan. Microloans are usually capped at thirty five thousand and the term is generally capped at six years. The rate of interest of microloans is substantially higher than the aforementioned SBA loan types. It ranges from 8% to 13%.
There are some specialty loans as well such as disaster recovery loans, international trade loans and export express loans. Each of these loans has different criteria, caps on loan amounts and interest rates.