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SBA basic section 7(a)

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SBA basic section 7(a) loan guarantee program components

Congratulations on starting up your own small business. Of course there are a lot of things that you need to do as a new business owner. One of those things may be to give your company a boost with a small business loan. The SBA basic section 7(a) loan guarantee program is designed to provide small businesses with financing opportunities with reasonable terms, while at the same time reducing the risk to lenders. Any such relationship is normally beneficial to all parties involved.

The SBA basic section 7(a) loan can be used for building or acquisition of property, expansion, renovation, machinery, equipment, furniture, refinancing debt and increasing working capital. Reasonable collateral or liens on personal assets will be required as they are available.

As with all financial transactions, there are certain criterions that you (or your business) must meet to be eligible. You may want to contact several lenders to consider all the options and loan products available to you.

Here are some SBA basic section 7(a) loan guarantee program components that you should know about:

Employee numbers/sales average - The number of employees you have must fall within the set limits given for your type of industry and the location in which you are applying for the loan. If the nature of your business is not to hire employees, then your sales average for the past given time must meet local standards.

Terms - The terms of your 7(a) will be negotiated between you as the business owner and the lending institution before any funds are awarded or change hands.

Maximum Loan Amount - The maximum amount of money able to be obtained through the SBA basic section 7(a) loan guarantee program is 2 million. The maximum guarantee amount is 75% and of course may be subject to change. Smaller loans have a higher guarantee, about 85%.

Fees & Penalties - As with any loan certain fees will be applied. These include processing fees, application fees, brokerage fees, etc. Pre-payment penalties may be applied if certain criteria are met and such information should be disclosed beforehand.

Interest Rates - Interest rates for SBA loans can be either fixed or variable and are dictated by the amount and length of the term of the loan. You can discuss the current interest rates with your lender.

Other Information needed for the Lender and SBA 7(A) Approval - Again this will vary by lender and location. A full list should be provided to you by your broker or lender.

The SBA basic section 7(a) loan guarantee program components include different programs that appeal to different types of businesses. For example, there is a program for international business people, and another for helping to stretch available capital. Here are some brief descriptions (and of course all programs have an application and approval process):

Export Working Capital Program (EWCP) - Available through an application process, EWCP provides working capital to small businesses that would not otherwise have such money available to them. The money must be used only towards furthering the capital of the business.

International Trade Loan Program (ITL) - The ITL provides assistance to small businesses involved in (or wanting to start) international trade. It is helpful for entering already competitive trade markets.

Community Adjustment and Investment Program (CAIP) - CAIP is designed to assist those small businesses who have been or could be adversely affected by NAFTA.

Pollution Control Program - Seeks to assist those who are or who would like to start some sort of pollution control at their facility.

These are not all of the programs available. More extensive list and more details regarding qualification and terms are available through your lender. Careful consideration should be taken when choosing if this type of financing is right for your business and what options you will have with each. Care should be taken to weigh the pros and cons of each type of loan.

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Posted by DF
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