SBA loans are one of the most sought-after forms of business funding. If you’re curious about what they are, just keep reading for a rundown on the basics and what they can be used for.
The “SBA” in “SBA loans” stands for the Small Business Administration; however, the loans are not funded directly by the administration. Instead, the SBA works with lenders by backing business loans, lessening the risk for lenders and making money more readily available for borrowers.
SBA loans come in multiple forms, with the most common being the 7(a) loan. They are prized for their flexibility. These loans can be used for buying equipment, land, and real estate as well as improving or constructing buildings. The loans are also useful as sources of working capital and revolving credit. (An important caveat: Regardless of what the business intends for the funds, it will need to explain that purpose while applying.)
The 7(a) loan itself has multiple derivations. For instance, 7(a) Export Express loans focus on a streamlined application process. You can read about different species of 7(a) loans on the SBA’s 7(a) page.
While 7(a) loans are broad in function, 504 SBA loans are more specialized. They are specifically meant to promote the creation of jobs and business growth, per the SBA’s Office of Financial Assistance. That, in turn, means 504 loans help businesses expand. They do so by facilitating business’ ability to purchase and improve equipment and buildings. The 504 loan program also helps businesses afford machinery and equipment, which often have long-term repayment timelines.
To sum up, 7(a) loans are the way to go for businesses that have a general need for more funding. Meanwhile, 504 loans can provide a boost to business specifically looking to expand.
If you want to keep learning about the business and financing worlds, POM Capital & Funding Services’ blog is a go-to resource.