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Mar. 30, 2022 in

Finding the Right SBA Loan for Your Business

An (SBA) Small Business Administration Loan provides a viable alternative to traditional business financing to give small businesses the boost they need to succeed. As a participating SBA lender, Mechanics Cooperative Bank works with the SBA to provide your business the options to take advantage of several SBA loan programs. However, that still leaves the question of which program best fits your business needs. Find the right SBA Loan Program for your business with this breakdown of each and contact our SBA Loan Specialists to walk you through the application and approval process.

 

7 (a) Loan Program

The 7 (a) loan program serves as the SBA’s most common loan program that provides the best option for those looking for flexible loan terms and usage. Eligible borrowers can borrow up to $5 million on their first loan in terms of amount. Still, business owners with ongoing needs and good credit history will have the option to come back for subsequent SBA loans to fund further organizational growth. A major real estate purchase is among the best options for a 7 (a) borrower; however, several basic uses are available. To be eligible for this program, lenders must also meet several requirements based on what the business does to receive its income, credit history, and where it operates.

 

Basic uses for the 7(a) loan include: 

  • Long- and short-term working capital 
  • Revolving funds based on the value of existing inventory and receivables 
  • The purchase of equipment, machinery, furniture, fixtures, supplies, or materials 
  • The purchase of real estate, including land and buildings 
  • The construction of a new building or renovation of an existing building 
  • Establishing a new business or assisting in the acquisition, operation, or expansion of an existing business 
  • Refinancing existing business debt under certain conditions 

To be eligible for 7(a) loan, your business must: 

  • Operate for profit 
  • Be considered a small business, as defined by SBA 
  • Be engaged in, or propose to do business in, the United States or its possessions 
  • Have reasonable invested equity 
  • Use alternative financial resources, including personal assets, before seeking financial assistance 
  • Be able to demonstrate a need for a loan 
  • Use the funds for a sound business purpose 
  • Not be delinquent on any existing debt obligations to the U.S. government 

Express Loan Program

The Express Loan program offers a smaller amount of financing capped at $500,000, with lender-approved applications receiving responses in as little as 36 hours. While decisions are made faster than the other SBA loans available, these carry a lower guarantee, with the government guaranteed to pay only 50% of the outstanding balance on a defaulted loan compared to the 85% guaranteed with a 7(a) loan. However, those that meet the business requirements and fall within the right usage category can take advantage of the flexible terms and competitive interests that lenders may not find in traditional business funding.

 

An Express Loan can be used for A range of assets that promote business growth and job creation. These include the purchase or construction of: 

  • Providing long-term working capital (Accounts payable, purchasing inventory, and other operational expenses)
  • Providing short-term working capital
  •  (Seasonal financing, contract performance, construction financing, and/or export) Purchasing real estate
  • Purchasing equipment, furniture, machinery, supplies, and materials
  • Covering construction and/or renovation costs
  • Establishing or acquiring a new business, or expanding an existing business
  • Refinancing existing business debt (so long as the lender and ultimately the SBA are not able to sustain a loss through refinancing)

An Express loan cannot be used for:

  • Reimbursing an owner for any previous personal investments toward the business
  • Repaying any delinquent withholding taxes
  • Affecting any change or change of business ownership that will not have a positive effect on the business
  • Any purpose not deemed a “sound business purpose,” as determined by the SBA

To be eligible for an Express loan, your business must: 

  • Have been in existence for at least two years. 
  • Be able to show a need for financing and the ability to repay (no previous delinquencies on government loans) and must show that the funds will be used for a legitimate business purpose. 
  • Be prepared to provide collateral for loans above $25,000 

504 Loan Program

The 504 Loan program provides long-term fixed-rate financing aimed at conserving small business capital with down payments as low as 10%*. This can be cover-up $5 million traditionally or up to $5.5 million on multiple loans that cover eligible energy-efficient manufacturing projects at below-market rates that are typically fixed for the life of the loan. These are ideal for businesses struggling to secure conventional financing for major fixed assets that promote businesses’ growth and job creation. 

 

A 504 loan can be used for a range of fixed assets that promote business growth and job creation. These include the purchase or construction of: 

  • Existing buildings or land 
  • New facilities 
  • Long-term machinery and equipment
  • The improvement or modernization of streets, utilities, parking lots, landscaping, and existing facilities  

A 504 loan cannot be used for: 

  • Working capital or inventory 
  • Consolidating, repaying, or refinancing debt 
  • Speculation or investment in rental real estate

To be eligible for a 504 loan, your business must: 

  • Operate as a for-profit company in the United States or its possessions
  • Have a tangible net worth of less than $15 million
  • Have an average net income of less than $5 million after federal income taxes for the two years preceding your application 

Seeking the right SBA small business funding? Contact the SBA Loan Specialists at Mechanics to walk you through the process! Learn more and contact us today to get started.

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