If you are a startup, then we are sure that you understand the challenges faced by newbies in gathering financial capital because of their limited size and operating history. But there are certain avenues you can tap into and look out for that provide loans with ease even during the development stage of the lifecycle.

One of these types of loans is SBA loans whose basics are discussed in detail for you on this blog.

What are SBA Loans?

SBA short for Small Business Administration is a type of loan provided to small business owners which are guaranteed by the SBA and issued by participating lenders which are mostly banks. The guarantee provided to the lender by the SBA is to pay a portion of the loan back in case the borrower defaults.

This means that the terms of the loan are structured according to SBA requirements for the business owner (borrower) with an SBA guarantee.

What types of SBA loans are available?

Different types of loans are designed and tailored to meet the demands of different businesses and borrowers. Its types are as follows.

7(a) loan program

These are guaranteed term loans of up to $ 5 million and can be used for a number of purposes including working capital, equipment purchases, expansion, and more. They are mostly processed through banks or through credit unions and specialized lenders.

504 loan program

These are guaranteed loans of up to $5 million and can be used to buy real estate facilities and machinery.  These are processed through nonprofits and private-sector lenders.

Microloans

These are guaranteed through community-based nonprofits and are available up to $50,000.

SBA Disaster Loans

These loans available to business owners or any other borrower is for the use of repairing or replacing damaged or destroyed items, such as real estate, machinery, equipment, and inventory, in a declared disaster.

Importance of SBA loans

For a startup, gathering all sorts of capital is necessary to get the ball rolling. But first, before any other capital, it requires financial capital with which it can afford to acquire other sorts of capital. Because of this very reason, the acceptability, and importance of SBA loans has come into limelight.

It is one of the great options if you are looking to open your office at a new location, hire some staff, or are considering refinancing an existing loan. Its rates and terms are usually more manageable for borrowers when compared with other types of financing options. It also offers you more time to repay your loan than what you would get on other types of loans. This availability of longer-term means a lower interest rate and lower periodic payments which leave more money available for other more important business needs.