SBA Loans: Options, Benefits, and Lenders Part 2 of 2

In this second installment, we will further examine what kinds of SBA loan options are available, and for what kinds of businesses they are most advantageous. We will also discuss different types of SBA lenders.

There are several different lending programs for those who qualify for an SBA loan. However, it should be noted that not every SBA approved lender offers every loan option; some lenders may be flexible than others.

A loan programs are generally intended to encourage long term small business financing, however, actual loan maturities are based on several different factors; 1) ability to repay, 2) purpose of loan proceeds, and 3) useful life of assets financed. However, maximum loan maturities have been established: twenty-five years for real estate and equipment and seven years for working capital.

Basic 7(a) loan Guaranty: The 7(a) is an SBA guaranteed loan provided through SBA certified commercial lending institutions. The maximum loan amount for a 7(a) is $2 million, with SBA guaranteeing up to 75% or $1.5 million.

Interest rates for 7(a) SBA loans are usually negotiated between borrower and lending institution. However, SBA itself has set maximum interest rates depending on loan amount, highest rate being 4.75 percent on a loan of $25,000 or less with a maturity of seven years or more.

Because of it's flexibility, 7(a) is ideally suited for start-up or small growing businesses who are denied financing through other sources. The loan funds can also be used for a wide variety of purposes: renovation, real estate, equipment, payment of prior debts, etc.

Certified Development Company (CDC), a 504 Loan Program: The 504 SBA loan is designed to not only benefit small business that receives loan funds, but also community in which business resides. Each 504 loan is administered through a CDC, a private, nonprofit corporations set up to contribute to economic development of their specific community or region. The CDC will make small business loans up to a maximum of $2 million with understanding that business will use funds in a manner that will further community or regional public policy goals. Typical goals may include: business district revitalization, export expansion, rural development, expansion of minority business development, etc. In total, there are about 270 CDCs nationwide, each covering a specific geographical area.

What do you do about this?

The answer for paying unexpected expenses is an emergency savings account.

An emergency savings account is a sum of money set aside in an account that is only used for paying any unexpected expenses.

Unexpected expenses come in many varieties and range from a roof leak to a job layoff.

There is no hard and fast rule to determine how much you need in an emergency savings account, only rules of thumb.

If you are still paying off your unsecured debts it is generally accepted that $1,000 is an appropriate amount until you have become "bad debt" free.

If you have nothing more than a mortgage payment or perhaps are completely debt free common recommendation is that you have 3 to 6 months living expenses put aside. Now this is where it gets tricky. Everyone will have different requirements for 3 to 6 months living expenses. The general rule of thumb is to have at least $10,000 available.

This is just a rule of thumb and you will have to do some thinking for yourself here. If your mortgage payment is $2,000 each month, then $10,000 surely will not cut it. On other hand, if you are debt free, $10,000 may be a nice cushion. Once you are living on a monthly budget it will be easy to determine how much you will need for your emergency fund. Make sure that you do not skimp on this account.

Your emergency savings needs to be readily available; money market accounts are usually best choice.