The U.S. Small Business Administration (SBA) was founded as an independent federal government agency to help American businesses get started, compete, and thrive by helping business owners access funding. Today, there are 33.3 million small businesses in the U.S., comprising 99.9% of all businesses. The SBA also has a variety of resources available for small businesses, including programs for businesses owned by women, veterans and Native Americans. If you a thinking about starting a small business in Texas or are a small business looking for a loan, this article will explore the most popular types of SBA financing available.
Types of Small Business Administration Loans
Although the SBA offers several helpful loan programs and resources, they don’t directly finance business loans. Their role is to create guidelines for loans that an SBA lender, like SouthWest Bank, will underwrite, by offering a “guarantee” to help reduce the risk to the lender since the SBA is promising to pay back a portion of the loan if the business owner defaults. What that means is that when you apply for an SBA loan with SouthWest Bank, you’re technically applying for a commercial loan with SBA loan requirements, which helps more business owners qualify for funding where they may not otherwise.
SBA Loan 7a
The SBA loan 7a is generally used to fund the purchase of new equipment, inventory and supplies, upgrading or constructing a new building, covering operating expenses, seasonal financing and other capital needs. This type of SBA financing can also be used to start a new business, acquire a business or expand an existing business. Facts to know about SBA loan 7a:
- Average 7(a) Loan Size in 2023: $479,685
- Max 7(a) Loan Cap: $5 million
SBA 504 Loan Program
The Certified Development Company (CDC)/504 SBA Loan is suited for businesses that need financing for fixed assets, such as equipment or real estate. You can use an SBA 504 loan from SouthWest Bank to:
- Buy land or buildings
- Improve your business area (e.g. parking lot, street, landscaping, etc.)
- Build new facilities or upgrade your current one
- Buy equipment or machines
Note that you can’t use an SBA 504 loan for working capital, repay debt, or invest in a risky real estate deal.
SBA Loan Requirements
The SBA guidelines for each of their loan programs are very detailed. The criteria range from the size of a business to not owing money to the government, to where your business is run, the character of the small business owner, and what a business does to make a profit. The easiest way to wade through the SBA loan requirements and details is to work directly with SouthWest Bank. Contact us online or visit one of our West Texas locations today.