Are you interested in borrowing money for your existing or start up business? As you may know this is the most difficult type of financing to acquire, particularly for start up companies. Like any loan you and your asset (the business) will be analyzed and scrutinized. It is important to have all financial documents for your business, projection, plans, and also information about your personal credit history, income and assets.
Banks have been clamping down on this lending during the credit crunch of late, however as many local governments including the United States try and spur economic stimulation, these loans are slowly being introduced to the populous.
What are the common types of loans mad available by the US Government?
7(a) Loan Program
The 7(a) Loan Program includes financial help for businesses with special requirements. For example, funds are available for loans to businesses that handle exports to foreign countries, businesses that operate in rural areas, and for other very specific purposes.
Microloan Program
The Microloan Program provides small, short-term loans to small business concerns and certain types of not-for-profit child-care centers. The SBA makes funds available to specially designated intermediary lenders, which are nonprofit community-based organizations with experience in lending as well as management and technical assistance. These intermediaries make loans to eligible borrowers. The maximum loan amount is $50,000, but the average microloan is about $13,000.
CDC/504 Loan Program
The CDC/504 loan program is a long-term financing tool, designed to encourage economic development within a community. The 504 Program accomplishes this by providing small businesses with long-term, fixed-rate financing to acquire major fixed assets for expansion or modernization.
A Certified Development Company (CDC) is a private, nonprofit corporation which is set up to contribute to economic development within its community. CDCs work with SBA and private sector lenders to provide financing to small businesses, which accomplishes the goal of community economic development. Typically, a CDC/504 project includes:
- A loan secured from a private sector lender with a senior lien covering up to 50 percent of the project cost
- A loan secured from a CDC (backed by a 100 percent SBA-guaranteed debenture) with a junior lien covering up to 40 percent of the project cost
- A contribution from the borrower of at least 10 percent of the project cost (equity)
This type of setup means that 100% of the project cost is covered either by contribution of equity by the borrower, or the senior or junior lien.