The Small Business Administration’s lending program had been suspended in July for reaching its limit of loans. However, on August 3rd, 2015 the US House of Representatives voted in favor of a bill that would lift the lending cap for the SBA’s small business loan program. These loans are guaranteed by the SBA, which allows them to partner with approved SBA lenders to make finance deals for small business start ups or expansions that may not otherwise have been funded. The cap has now been raised to $23.5 billion dollars. Having passed, the bill only requires President Barack Obama’s signature.
Industry analysts expect the loan program to be functioning again by the end of the first week of August. While SBA loans are coveted by small business startups, it is always recommended to have an attorney review any loan documents before signing, to ensure that the borrower understands the full repercussions of what they are agreeing to.
The SBA has four major loan groups. The first, General Small Business Loans (also known as 7a loans) are given to businesses that qualify as small businesses, who have invested personal resources in the business before seeking a loan, and not be delinquent on current obligations (among other eligibility criteria.) The maximum loan amount in this program is $5 million dollars, however, the average loan (according the SBA) that is issues is around $337,730.
These loans are not fee free. They carry fees and interest rates that are comparable to the market, as well as a personal guarantee.
The second type of loan program is the Real Estate & Equipment Loans. Before you consider starting a career as a real estate mogul, these loans cannot be used for speculative investments. They must be used as the basis of a retail base. Additionally, they cannot be used for working capital or inventory.
Start ups might be interested in the third type of loan, which is the Microloan program. The SBA offers up to $50,000 to new start ups, although the average micro-loan is $13,000. These loans can be used for initial equipment and machinery, inventory, working capital and even furniture.
Finally, there is the SBA Disaster Loan program which seeks to help out businesses that have been hit by some sort of natural disaster.