Borrowing Basics and SBA Loans

The Small Business Administration (SBA) is a vital financing tool when starting or growing a small business. The SBA is a government agency that provides support to maintain and strengthen small businesses. There are many benefits to clients who utilize the SBA for loans. The loans are made through banks and other lenders who partner with the SBA. So, the agency isn’t actually providing the loan, but rather providing a government-backed guarantee on part of the loan.

The SBA offers a variety of different loan programs for specific purposes.  Two common programs are the CDC/504 loan program and the 7(a) loan program. Here’s what the programs do:

CDC/504 Loan Program

A Certified Development Company (CDC) is a non-profit corporation that is certified, regulated, and granted from the SBA to provide financing to small businesses. The 504 program is very specific as it is only for fixed asset financing only. It can be used for purchases like land, equipment, new buildings, etc. For this program, the SBA partners with a local bank in which the bank takes 50% of the transaction and the SBA takes up to 40%, allowing the small business owner to have as little as 10% down payment on asset acquisitions. This program also allows the owner to have fixed rate financing for up to 20 years. It allows the owner the benefit of a consistent payment for 20 years.

7(a) Loan Program

This program is the SBA’s most common. It can provide financing for any business purpose, and is not limited on fixed asset financing like the 504 program. Some basic uses for this loan include working capital, inventory purchases, and refinancing existing business debt. The 7(a) is a guaranteed loan of up to $5 million for any small for-profit business.

To get started, check your personal credit, define your financial needs, and visit your local bank and present your business idea and need for a loan. The bank will decide if they want to administer the loan themselves or if they need the SBA to make it happen. Your bank will help find the right loan program that fits you and your business.

For more information, visit sba.gov or listen to our radio show “Fidelity Bank – On Business” featuring Tim O’Brien, Senior Executive VP and Chief Lending Officer, Fidelity Bank; Bob Maximowicz, Wilkes-Barre Branch Manager, U.S. Small Business Administration; and Stephen Ursich, Executive Director, Northeastern Economic Development Company.