We’ve talked a lot about the way that small businesses have bounced back from the dreary economic climate of the last few years and are prospering in a new wave of appreciation for small businesses in America. America’s Main Streets are no longer occupied by unemployed and angry protesting citizens. Instead, small business owners are finally making their dreams come true — and doing their share for customers who appreciate quality service and want to support their local communities.
Between 2011 and 2012, small business lending increased by almost $2 billion, and according to the Small Business Administration, lending to small businesses increased more than 10% last year. There are an increasing number of small business funding options, but here we’re just going to focus on Small Business Administration loans.
Loans are one of the small business funding programs supported by the Small Business Administration. The loan does not come directly from the SBA itself, but rather from a participating private lender. Where the SBA comes in, is to provide a guarantee of a certain percentage of the loan amount should the borrower default on his or her loans. This reduces risk to the lender, which means that there is more funding available for small businesses.
One of the most common SBA loans is the 7(a) loan, which can be used for funding a start up. The maximum amount for this type of SBA loan is $5 million, but the Wells Fargo Small Business Index study reports that small business owners typically only use about $10,000. Interest rates on these loans vary and are negotiated between the lender and the borrower. There are a number of criteria that a potential borrower needs to meet, but one of them is that the borrower must be unable to acquire funding elsewhere at a reasonable rate.
There are other types of SBA loans available, so if you’re looking for small business funding you should find a participating institution and consult with them to see what you’re eligible for and how they can best help you. If you’re ready to start your small business, you should make sure that you have detailed and solid business and financial plans before you go after funding.