SBA Small Business Loans Can Be Confusing, Lets Sort Them Out
By Corey Pierce

Being classified as a small business isn't a bad thing. In fact, it means that you may
qualify for a large amount of support from the Small Business Administration or "SBA".

When you are in business for yourself, it is critical to develop a good knowledge base,
and that is also what will help you wade through the myriad of small business loans.

So Let's Look at How SBA Loans Work

The first thing you need to understand is that you as a business owner are not going to
deal with the SBA yourself. The SBA does not act as a principle lender. Instead it backs
loans made to small businesses that might otherwise not find a favorable market in
traditional lending circles.

This means that you will still seek financing from your regular source of lending:
banks or other private financial institutions, and if they feel that you have merit but
perhaps do not quite meet their more stringent requirements for a loan they put the
loan forward to the SBA as a security backing.

The SBA (Small Business Association) provides security for part of the loans presented
to them. That way the lending financier shares part of the burden of your risk and they
assume the other share. Therefore, you will still need to present a good case to your
lender to convince them of your worthiness for a loan.

When you are looking for small business loan consideration it is important to make
sure the lender you use participates in the program. Not all lenders do and it is not
required by law. Thankfully it is not hard to find lenders that work happily with the

Types of SBA Loans

The most common SBA loan is the Basic 7(a) Loan Guarantee. This loan covers many
areas and can be used for a wide variety of business resources. As with most SBA
loans to qualify for this loan you must be a for-profit business and present a solid
performance record and/or business plan to prove your desire to make money from
your company. While the Basic 7(a) Loan can be used for most business applications
there are some very pointed things it may
NOT be used for:

- Refinancing existing loans or debts.
- Create a change of ownership of the existing business, partial or full, that will not        
enhance the current business.
- Provide funds for the owner, or any partner in the business.
- Pay back taxes, liens, or any other funds in escrow.
- For any function considered unsound for the business.

The next common type of SBA loan is the Certified Development Company (CDC) 504
Loan. This is a long-term loan with a high maximum; however, the drawback to this
loan is that it has very defined uses. This loan must be made for the acquisition of
business equipment, real estate, equipment for expanding an existing business, or the
expansion of an existing business. This loan may
NOT be used for:

- Working capital
- Inventory
- Debt repayment
- Consolidation, or refinancing

To be eligible for the 504 Loan a business must be for-profit, and not engage in any
form of speculation or real estate for investment or rental.

Finally there is the Microloan, 7(m) Loan Program. This is a short-term loan with a
maximum of $35,000 made to small businesses and even not-for-profit businesses for
child-care. It is a loan designated for working capital, and many other operating
expenses such as the purchase of initial or on-going inventory, supplies, and other
operating needs. This loan may
NOT be used for:

- Pay debts
- Purchase property

Extra Considerations

Along with size there are some types of business that have other criteria that have extra
criteria to meet to be eligible:

- Franchise businesses: Franchise businesses are eligible for SBA loans so long as the
owner of the business is not in control of the main franchise, or has power to control
the operation. They must also have a right to profit from the franchise as an owner

- Recreational clubs and facilities: In order to be eligible the business must be open to
the public, not biased against any one person or persons, and operate for a profit.

- Farms and Agricultural types of business: Are eligible but should pursue more
specialized loans from ag related sources.

- Fishing vessels or businesses: Are eligible for loans not covered by the National
Marine Fisheries Service.

- Medical facilities: Are eligible so long as they have the appropriate licensing and are
more than a boarding house type of facility.

There are also considerations for certain persons who are eligible so long as they have
the lawful right to operate a business. Those persons on probation or parole are only
eligible if they are not currently involved in a current parole or probation situation,
currently a defendant in criminal court, used a SBA loan application to get their
probation or parole lifted or suspended.

Who Can Not Apply for a SBA Loan

The SBA does not guarantee loans for real estate investment firms or business
involved in rental properties. You cannot successfully apply for a small business loan
if your business is speculative in nature, involved in lending, an MLM or pyramid
sales program, operating for the purpose of gambling, or for any illegal activity.

The SBA does not approve loans for charitable, religious, or other non-profit

Final Thoughts

In some cases there are penalties involved in repaying a loan early. Be sure to talk to
your lender about all of the possibilities before signing any loan. There is rarely a
problem with business loans of any kind when you take the time to completely
understand the requirements.

Never be in too much of a rush. It is understandable that you are anxious to get going.
You are excited about your prospects and that is good. Diving into any loan just
because you can get it is never a good idea, however. The best circumstances is when
you are calm, ready to do all your homework, and also ready to push away from the
table if you do not feel the situation is desirable.

The SBA offers many classes for business owners to help them fully understand what
is available to them as well as other vital aspects of operating a business. The SBA
wants you to succeed, and they want to help you every step of the way.

About the author: Corey Pierce is CEO of Since 1995, has been one of the Internet's largest resources for business owners in
search of business loans. has developed a business funding system that
matches a businesses owner's need for capital to the requirements of over 4,000 business loan
providers. Find out more about getting your small business loan approved at:
Business  => http:// .

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