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More than 32.5 million strong, small businesses account for 99.9% of all American businesses. To support these small but powerful drivers of America’s economy—which collectively employ more than 45% of the nation’s workforce—the Small Business Administration offers a variety of business loans to help them grow and succeed.
Of course, small business owners have many options for financing beyond the SBA. With a line of credit from personal loans and business credit cards to a major bank, there’s no shortage of options for putting in cash. But when it comes to some of the most competitive loans with low interest rates for large loan amounts, SBA loans are among the most sought after.
Established to encourage small business economic activity, the SBA is a government agency that provides grants in partnership with private financial institutions such as banks or credit unions. It serves as collateral for the loan from the installment to the total loan amount. This allows institutional lenders to offer borrowers favorable financing options because they are less likely to lose their investment if the business fails.
In other words, by backing the debt a small business takes on, the SBA lowers the barriers that often stand in the way of getting approved for a bank loan.
Today, a small business owner can apply for one of several SBA loan options, depending on their business situation and needs. Most for-profit businesses are eligible for SBA financing.
To learn more about available funding, Ruby Data used from SBA, Congressional Research Service, and other industry sources to compare the agency’s top three most popular small business loan programs and their benefits. The analysis includes peak loan amounts, loan numbers and values, loan recipient demographics, typical loan uses and other significant factors in fiscal years 2021 and 2022.
7 (a) Loan
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Named after the section number under the Small Business Act, the 7(a) loan is the SBA’s flagship loan program and also its most popular. In 2022, the agency issued 47,678 7(a) loans totaling $25.7 billion. Historically, white male entrepreneurs have comprised the majority of loan recipients, and as of 2017, minority and women-owned businesses have seen only modest gains. In the year By 2022, minority-owned business owners will account for 32% of 7(a) loan capital (up from 30% five years ago), and majority women-owned businesses will account for 15% (up from 14% five years ago).
With $5 million held by one borrower, 7(a) loans have interest rates in between. 6 to 10%. There are several requirements that a small business owner must meet in order to be approved, including proof that you have exhausted alternative sources of funding, built up reasonable equity in the business, and have a good personal credit score.
In addition to providing capital for long and short-term business operations, the loan is primarily for owners planning to make significant purchases such as equipment, real estate or land. expand or acquire another business; Investing in building or renovating an office building; or debt repayment. The loan can finance one or more of these financing needs, so it’s a great option for borrowers who want to support a wide variety of growth. In other words, borrowers don’t need to apply for multiple loans at different rates for different purposes.
A 7(a) loan is also an attractive option for owners planning to purchase real estate. The loan offers a repayment period of up to 25 years, which can be ideal for real estate investments, which usually take years or even decades.
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The 504 loan program provides long-term financing for assets that create business growth or employment. These loans are unique because they represent a non-profit partnership. Certified development companyA community-based business — and formal lender — that oversees nonprofit organizations while promoting economic development. The SBA oversees the CDCs that administer the loan division.
504s can be used to purchase or renovate capital assets (land, buildings, equipment). [r]Giving money [is] Allowed “According to the SBA. In general, it is easy to qualify for these loans. An individual business can borrow up to $5 million in 504 loans (although some projects qualify for up to $5.5 million); Fixed interest rates For 504 loans from 6.47-6.54%, depending on the maturity of the loan.
Unlike 7(a) loans, businesses must obtain 504 loans through the CDC and use the money only to finance fixed assets, which are things needed to run the business over time, such as company vehicles, machinery or a building. 504 loans often feature below-market interest rates.
In fiscal year 2022, the SBA approved 9,254 loans worth $9.2 billion. Minority-owned businesses accounted for 24% of 504 loans and 27% of loan dollars; Women-owned businesses accounted for 12 percent of the 504 loans and 10 percent of the loan dollars.
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Microloans represent some of the easiest SBA loans for small businesses to get, but they are the smallest loans available at a cap of $50,000. It is the average micro loan amount. 13,000 dollarsAnd the purpose of these small financial aid packages b Helping a small business open its doors According to the SBA, “marketing, management, and technical assistance to microloan borrowers and borrowers.” Interest rates range from 8% to 13%.
A microloan may be appropriate for a new or existing business owner who needs an incentive to meet short-term goals, such as a startup or expansion. Unlike other SBA offerings, these microloans are best suited for startups, as the applicant does not have to provide a financial history of the business – two years of industry experience, collateral and a solid business plan are among the criteria.
Another requirement for SBA microloans is that the applicant has a history of theft and fraud and “good character” among other crimes. (However, a criminal record does not automatically disqualify someone – it may take more work to win over creditors). Interestingly, research shows that, contrary to popular belief about the characteristics of successful business owners, extroverted or neurotic personality traits do not make them more likely to receive an SBA microloan. 2021 quantitative study Of the 177 small business owners, they did not find a strong relationship between successful microloan approvals and external characteristics such as sociability, talkativeness, and assertiveness, which are often associated with successful startup founders and business owners.
Compared to 7(a) or 504 loans, the least popular types of loans, microloans provide the most money to women and minority-owned small businesses. Data from 2022 is not yet available as of publication, but according to data from the Congressional Research Service, in 2021, the SBA approved 4,510 loans worth $74.6 million. 61% of loans and 41% of loan dollars went to small businesses, and 48% of loans and 41% of loan dollars went to women-owned businesses.
This story originally appeared on Ruby and is produced and distributed in partnership with Stalker Studios.