Types of SBA Loans

by Laurie Masera Garza
types-of-sba-loans

Starting and growing a business is challenging. You need capital to cover commercial property, equipment, and materials. Not to mention that you have to be able to pay employees to help you get your business off the ground; even if you've secured funding for your business needs, unexpected economic events can leave you short of cash. 

If you need funds to start, grow, or operate your business, an SBA loan might be the answer. Several loans backed by the Small Business Association are designed for various uses. Here, we explain SBA loans and explore the different SBA loans available to small business owners.

Introduction to SBA Loans 

SBA loans are business loans backed by the Small Business Association that can help cover real estate purchases, startup costs, working capital, and more. Since the SBA oversees these loans, the qualifications and repayment terms may differ from typical business loans. As a result, they may be a more attractive option for new businesses. 

The SBA works with designated lenders nationwide to provide financing to small businesses. To apply for a business loan that meets your needs, visit a local lender and fill out an application. Your business must meet SBA size standards, which require you to be under a specific annual revenue (based on your industry) to qualify.

PrimeWay Federal Credit Union in Houston is a qualified SBA lender. We offer various SBA loan options designed to meet the specific needs of small businesses in the area. Each type of SBA loan has specific terms and conditions. To determine which loan is right for your Houston business, consider each loan type's eligibility requirements and purpose.

SBA 7(a) Loans

With various use cases and flexible eligibility, the SBA 7(a) is the SBA's most common loan option. It is designed to help businesses finance startup costs, including real estate, equipment, inventory, and working capital. 

To be eligible for an SBA 7(a) loan, you must meet these requirements:

  • Be a for-profit business operating in the U.S.
  • Meet the SBA requirements to be considered a small business
  • Be able to demonstrate a need for a loan
  • Have invested equity into your business
  • Show the business purpose for which you'll use the funds

An SBA 7(a) loan provides businesses a maximum loan of $5 million with repayment terms of up to 25 years. Common use cases include real estate, working capital, expansion, equipment, and construction or renovation.

SBA 504 Loans

Typically used for large purchases, SBA 504 loans are designed for major fixed assets that promote business job growth and job creation. 

To be eligible for an SBA 504 loan, you must meet these requirements:

  • Be a for-profit business operating in the U.S.
  • Have a business net worth of $15 million or less
  • Have an average net income of $5 million or less
  • Meet job creation and retention or other public policy goals

An SBA 504 loan provides businesses a maximum of $5.5 million with repayment terms of up to 25 years. Use cases for SBA 504 loans are restricted to investments that meet job creation and retention or other public policy goals. Typical uses include real estate purchases, construction, renovation, and equipment.
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SBA Microloans

A smaller-scale loan, SBA microloans are designed specifically for startups. The microloan program aims to reach lower-income communities and businesses that traditional lenders usually overlook. Unlike other SBA loans, the SBA is a fully funded microloan and typically requires some form of collateral. 

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To be eligible for an SBA microloan, you must meet these requirements:

  • Be a startup or early-stage business
  • Be a for-profit business or qualifying child care center in the U.S.
  • Provide collateral to secure the loan
  • Provide a personal guarantee of repayment
  • Meet credit score requirements
  • Have a defined purpose for the loan

An SBA microloan provides businesses with a maximum loan of $50,000 with repayment terms of up to 6 years. Typical uses include working capital, inventory, supplies, furniture, fixtures, machinery, or equipment.

SBA Disaster Loans

As the name indicates, SBA disaster loans are available to businesses that have been affected by a declared disaster. Funds can be used for repairs, replacement of working equipment, and working capital. Unlike other SBA loans, businesses of all sizes and non-profits are eligible for SBA disaster loans.

To be eligible for an SBA disaster loan, you must meet these requirements:

  • Be a business or non-profit organization located in a disaster area and have incurred damage during the disaster
  • No ability to obtain credit elsewhere

SBA disaster loans provide businesses with up to $2 million, with up to 30 years of repayment terms. Common uses include repair or replacement of real property, machinery, equipment, fixtures, inventory, and leasehold improvements. 
Types of SBA Loans

Boost your business with PrimeWay's diverse SBA loans, from 7(a) to 504 and microloans. We'll be able to guide you to the perfect solution for your needs.

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How to Choose the Right SBA Loan for Your Business

SBA loans have rates and fees that can make them more attractive to small and early-stage businesses. However, they have certain qualifications and eligibility requirements. Before applying for an SBA loan, consider the amount of money you'll need and the intended purpose of your loan. For example, only 7(a) loans and 504 loans are used for real estate purchases. While microloans have significantly lower loan amounts, they have minimal requirements and can be a way to get financing when other options aren't available. Other vital factors to consider include interest rates and repayment terms.

The best way to learn more about available SBA loans is to talk with a local lender approved to administer SBA loans. To determine what type of loan is right for your Houston business, reach out to the financial experts at PrimeWay. We can help you explore options from SBA loans to traditional business loans or lines of credit to meet your business needs. With flexible options and competitive business rates, you can get the financial support you need to start, grow, or operate your business.

Author Bio

Laurie Masera Garza

Laurie is a digital marketing and social media maven who has more than 15 years of interactive multi-media experience under her belt. When she is not rocking the social media atmosphere, Laurie loves to find Houston’s hidden dining gems, but ask her about tacos. She loves tacos. In her spare time, Laurie loves creating, whether its art or memories.

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