Before choosing any loan, it is advisable to go through the advantages and also the disadvantages of the different types of loans. SBA (Small Business, Administration) works with different financial institutions and offers different loans for small businesses.
The repayment terms depend on how this loan is used. For example, if this loan is used as working capital, you have around seven years to repay this, equipment purchase; you have ten years, and for real estate you have 25 years. Most often, this funding can be used for any type of funding connected to your business.
Here are some pros and cons of the SBA loans:
Pros of the SBA Loans:
Some of the advantages of these loans include
a)Generous lengths of the term
- b) Specific caps on the rates of interest include a 2.75 points cap over the prime on loans over $50,000 with a seven-year term.
- c) Finance for nearly 80 to 90 percent of the costs of the project.
- d) Down payment requirement is less.
You can use the proceeds for all the costs of the project, that includes the fees of the franchise, the equipment, construction, the soft costs, cash operating capital, and lease deposits.
Cons of the SBA Loans:
These SBA loans have their own set of drawbacks besides the many advantages. The standard operating procedure of these loans is that in case the borrower has some personal assets for securing the loan, the lender has to put a lien on these as additional security. This can cause interference with the professional and personal goals.
If cash or securities are pledged as the collateral, it affects in a negative manner the liquidity. This might add to the difficulty of opening the next franchise location and inhibit the growth of your business.
Different Types of SBA Loans:
It is important to be familiar with the different types of SBA loans so that you can make the right choice.
CDC/504:
This CDC/504 SBA loan works well if you need to buy machinery, buildings, or real estate and do not need any other working capital. This loan has a maximum on the high side of $25 million. You get more flexibility.
7(a) SBA loans:
As mentioned, SBA loans are available in different forms. The 7(a) loan works beneficial for the required working capital, major equipment expenses, or expansion of the business. Under this program, you have the freedom to take up to $5 million.
Microloans:
Specialty lenders and nonprofit organizations offer these microloans. This SBA loan is more for small businesses or those at the beginning stage. This microloan is used as working capital and the maximum amount is $50,000.
Disaster Loans:
Disaster can cause havoc to small businesses. Keeping this in mind, the SBA offers specific disaster loans. The main aim of these loans is to ensure that small companies do not go out of business.
Check out the different rates along with different terms and conditions before you choose any kind of SBA loan.
