Understanding Different Types of Financing and SBA Loan Programs
 Let’s Get Lender Ready!
How do you fund your business? Personal savings? Equity Investor, Crowdfunding, or loan programs?
In the realm of business financing, entrepreneurs have a plethora of options to consider. From traditional loans to specialized programs, choosing the right financing method can significantly impact the success and growth of your venture. Many have used personal credit cards or personal loans to fund their business. When you chose your business formation, perhaps you were thinking you would separate business and personal finances?
Here’s an overview of the various types of financing available, including insights into SBA loan programs:
1. **Traditional Bank Loans**: These loans are offered by banks and credit unions, typically requiring collateral and a good credit score. They offer competitive interest rates and can be used for various business purposes. Establishing a relationship with a local lender is important to your long term growth.
2. **SBA 7(a) Loan**: One of the most popular SBA loan programs, it offers flexibility in terms of loan amount and usage. It can be used for working capital, equipment purchases, and more. Loan amounts vary up to $5 million, with longer repayment terms and lower down payments compared to traditional loans. There are a variety of 7a loans for particular purposes, find out more on http://www.sba.gov/funding-programs/loans
3. **SBA Microloan Program**: Designed for small businesses and startups, microloans offer smaller loan amounts (up to $50,000) with shorter terms. They are ideal for businesses in need of a modest financial boost. Again you can get info on https://www.sba.gov/funding-programs/loans), but one should also look at CDFI’s for access to these microloans, particularly if you are a start-up as they can be combined with other opportunities. Check out Peoplefund.org, Liftfund, or Lending Avenue on programs they have for these small amounts. People Fund has a “Flashfund” program for small loans, i.e. $25,000, that can get approval in just a couple weeks. People Fund and Lift Fund also make lower fixed rate micro loans for veteran loan programs.
4. **SBA CDC/504 Loan**: This program provides financing for fixed assets like real estate and equipment. The loan amount can go up to $5.5 million, with low down payments and long repayment terms. It’s suitable for businesses looking to expand or acquire fixed assets. A 504 loan program can also be used to refi fixed assets. These loans are typically larger loan amounts, they require a CDC and a partnering bank. The interest rates are based on the U.S. Treasury Rates for the CDC, the lender will have a rate which is may be based off prime rates, usually the blended rates is lower than typical rates which supports the long term financing needs of the business. There are many CDC’s (Certified Development Corporation) that can assist with structuring, to name a few: ETCOG, Greater Texas Capital, People Fund, Lift Fund, Alliance – ask us for more information and read more on this program with the SBA https://www.sba.gov/funding-programs/loans
5. **ETCOG Regional Economic Development can be a great resource for our rural areas. Look for them to assist in small business loans or to be a 504 lending partner. I have found an ETCOG, much like their name regional economic development is motivated to provide resources to support the areas in it’s territory.
5. **Use of Proceeds**: SBA loans can be used for various purposes, including working capital, purchasing inventory, buying equipment, and land, building, construction. The specific use of proceeds depends on the type of loan and the needs of the business.
6. **Interest Rates and Fees**: SBA loans typically offer competitive interest rates, the SBA 504 is often lower than conventional loans. However, borrowers may incur fees such as guarantee fees and servicing fees, which vary based on the loan program and lender. Using other SBA lenders, that are non-depository institutions.
7. **Benefits of SBA Loans**: SBA loans provide numerous benefits, including lower down payments, longer repayment terms, and access to capital for businesses that may not qualify for traditional financing. Additionally, the SBA guarantees a portion of the loan, reducing the lender’s risk.
8. **Prepare for a Loan**: Prepare yourself by reviewing your credit and address issues which could impact your ability to get financed. Print the personal credit report to include in exhibits, we talk to the lenders to get their interest and the SBDC does not run your credit. Our clients use a secure portal to organize the following documents typically in a loan request:
- Business plan
- Financial projections and assumptions
- Financial reports on existing business
- Management resume’s
- Organizational documents on entity
- 3 years income tax returns
- Current Bank statement
- Exhibits:Â Quotes or estimates for use of loan proceeds; your personal credit report
- SBA413 – Personal Financial StatementÂ
Understanding the various financing options available, including SBA loan programs, is crucial for entrepreneurs seeking to fund their business ventures. For start-ups, working with a CDFI may enable them to have a lower equity percent. Remember the lenders do not 100% finance a deal. Each option has its own advantages and considerations, so it’s essential to evaluate them carefully and choose the one that best fits your business needs. Your local SBDC program works with various lending partners, contact an advisor to let them know your business needs and resources they can align with you.
SBA also offers a Lender Match program which allows you to enter your project and find a lender interested in working with you!
Trinity Valley SBDC serves the 5 county area of Trinity Valley Community College. We hold satellite offices in Kaufman, Terrell, and Palestine. Contact us at 903-675-7403 to schedule an appointment! We offer no-fee advising, we will request you to complete a client contact form which we will also sign to serve as a client confidentiality. Click to get started!
- Advisor:Â Miranda Perry, miranda.perry@tvcc.edu
- Advisor:Â Bryant Kelley, bryant.kelley@tvcc.edu
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Trinity Valley SBDC is a partnership program with the U.S. Small Business Administration, the State of Texas, and Trinity Valley Community College. Advising services are offered by Trinity Valley SBDC without regard to race, color, age, national origin, religion, sex, or disability. Special provisions will be made for limited English-speaking individuals and those with disabilities. Those interested may contact us at 903-675-7403.
The North Texas Small Business Development Center Network is funded in part through a Cooperative Agreement with the U.S. Small Business Administration and Dallas College. The North Texas SBDC is an Accredited Member of the Association of Small Business Development Centers. SBDCs are supported by the U.S. Small Business Administration and extended to the public on a non-discriminatory basis. The SBA cannot endorse any products, opinions or services of any external parties or services. Reasonable accommodations for persons with disabilities will be made if requested at least two weeks in advance. Language assistance services are available for limited English proficient individuals.
All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S. Small Business Administration or other funding partners.