Are you a woman small business owner who needs financing to expand your business? If so, now is the time to consider applying for a Small Business Administration (SBA) loan.
SBA loans aren’t easy to get, but they are worth the effort for two reasons. First, banks are often more willing to make SBA loans to entrepreneurs than other types of loans. This is because the SBA guarantees a percentage of the loan, so lenders face less risk of loan default than with standard business loans.
Second, SBA loans typically have far lower interest rates than other types of business financing. For example, the SBA’s most popular loan program, the 7(a) loan program, currently charges between 5.5 and 6 percent interest.
Why is now the time to apply for an SBA loan? In fiscal 2015, the SBA made a record amount of loans to small businesses — $23.6 billion worth overall — which is an increase of 23 percent from the previous year. What’s more, loans to women-owned businesses increased by 18 percent during the same time.
What do you need to know before applying for an SBA loan?
The SBA does not directly make loans; rather, it guarantees the loans up to a certain percentage.
Not all banks make SBA loans. Contact your local SBA district office for a list of SBA-approved lenders in your area.
The SBA offers several types of loans for different purposes.
- The most popular loan program, the 7(a) loan, can be used to start a new business or buy, operate or expand an existing one. 7(a) loans go up to $5 million; the SBA will guarantee as much as 85 percent on loans of up to $150,000, and 75 percent on loans over $150,000. Interest rates are set by lenders but subject to SBA maximums.
- The CDC/504 loan provides long-term, fixed-rate financing that can be used to for expansion or modernization. For example, you could use it to buy assets such as buildings, land or long-term machinery, or to renovate existing facilities. These loans are made through Certified Development Companies (CDCs) which are community organizations that work to help develop local communities.
- Need a smaller loan? The SBA’s Microloan program provides loans of up to $50,000 to help small businesses start and expand. The average microloan is about $13,000. The loans can be used for working capital, inventory or supplies, furniture or fixtures and machinery/equipment. These loans are made through nonprofit community-based organizations approved by the SBA.
There are other SBA loan programs for specific purposes; learn more here.
If you need help getting your business or business plan in shape, or preparing your loan application, one great place to get help is through the SBA itself. The agency’s Office of Women’s Business Ownership has locations nationwide to help women start and grow their businesses.
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Rieva Lesonsky is CEO of GrowBiz Media, a media and custom content company focusing on small business and entrepreneurship. Email Rieva at firstname.lastname@example.org, follow her on Google+ and Twitter.com/Rieva, and visit her website, SmallBizDaily.com, to get the scoop on business trends and sign up for Rieva’s free TrendCast reports.