|
The Right Business Loan
(CL) - For those thinking about starting a business or making improvements to an existing one, the foremost topics to consider are start-up capital and how to generate capital to make improvements. This typically involves taking out a loan.
Before venturing into the unknown with respect to business financing, it is important to get the facts about the types of loans available to small businesses in respect to the type of business or situation. The United States Small Business Administration can be a good place to research special loan programs and findloans beyond traditional lending institutions.
Microloans: When there is a need for a very small loan (maximum of $35,000), a microloan can be an option. The Microloan Program provides small loans to newly established or growing small businesses. Under this program, The United States Small Business Administration (SBA) makes funds available to nonprofit community-based lenders (intermediaries) which, in turn, make loans to eligible borrowers. The average microloan size is about $13,000. Applications can be submitted to the local intermediary and all credit decisions are made on the local level. While each intermediary has its lending and credit regulations, most will require collateral on the part of the borrower. A state-by-state listing of intermediaries can be found by typing the following link into your Web browser: http://www.sba.gov/ financing/microparticipants.pdf
Basic 7(a) Loan Guaranty: This is the SBA's primary small business loan. It is a good route for potential business owners to take when they may not be eligible for loans through other routes. It is a very flexible business loan, where funds can be used for a number of reasons, including working capital, machinery and equipment, furniture and fixtures, land and building (including purchase, renovation and new construction), leasehold improvements, and debt refinancing (under special conditions). Unlike microloans, these loans are offered through commercial lending institutions. Loan maturity is up to 10 years for working capital and generally up to 25 years for fixed assets.
Certified Development Company (CDC), a 504 Loan Program: These loans provide long-term, fixed-rate financing to small businesses looking to purchase real estate, make improvements to roads or property, or acquire machinery to expand upon an existing business. Funds cannot be used for working capital or inventory. These loans are delivered through Certified Development Companies, also known as CDCs (private, nonprofit corporations set up to contribute to the economic development of their communities or regions). Programs include a loan from a private-sector lender that covers 50 percent of the project and a secondary loan for up to 40 percent of the project cost from the CDC that is 100 percent SBAguaranteed.
F r a n c h i s e F i n a n c i n g : These are loans reserved for well-recognized or national franchises. Apart from a local bank, these loans are broken down into three main categories:
1. Franchisor-supplied funds - A franchise company can offer a list of reputable, and preferred lending institutions. They may also provide financial assistance themselves.
2. SBA assistance - Franchises are also eligible for the popular 7(a) loan previously discussed.
3. Other avenues - Some commercial lenders specialize in franchise financing through equipment leases and structured term loans. Another option is the ERSOP program, which uses a 401(k) or IRA as start-up capital without penalties, taxes or distributions.
Potential or existing business owners should always consult with an accountant who specializes in business operations before making any decisions about loans and financing.
| 
