If you own a small business in Minneapolis, you’ve probably heard about the Small Business Administration Minneapolis (SBA). The SBA partners with banks, credit unions, and other financial institutions to offer low-cost, government-backed loans to small businesses. Small business owners can use these funds to pay for daily business expenses, new equipment, inventory, and more.

It’s a common misconception that the Small Business Administration is a lender. While they provide the cheapest financing solution for small businesses, the SBA doesn’t lend you any money. They team up with lenders to fund small businesses. The SBA guarantees 75% to 85% of your loan, which means that even if you can’t pay it back, the lender doesn’t lose as much.

By lowering the lender’s risk, small businesses are more willing to offer small businesses with large, affordable loans. Your business gets financed, while lenders get interest payments. If you default on the loan, the lenders lose very little.

Top 3 SBA Loans

There are several types of SBA loans. But for small businesses, there are three main types of SBA loans that you need to know about:

1.    Microloan Program

As the name suggests, microloan offers smaller loan amounts to small businesses. The average SBA microloan is usually around $13,000 but may go up to $50,000. The interest rates may vary between 8% to 13% and the loan amortizes for six years – max.

There are no restrictions as to how you can use a microloan, as long as it benefits your business. You can use it as working capital or purchase inventory or equipment. But you cannot use it to buy real estate or refinance debt.

2.    CDC/504 Loan Program

The CDC/504 loan program is one of SBA’s cheapest and biggest loan. However, you can only use it to purchase equipment or real estate – or other large fixed assets.

With this type of SBA loan, you can borrow money up to $5 million, which can be paid within 10 to 20 years. Interest rates are usually around 5% to 6% with a 3% fee up front. Lenders also need 10% of your purchase as collateral to secure the loan.

While applying for the CDC/504 can be complicated, it’s a great choice for small businesses looking to purchase big and expensive equipment, real estate, or renovations.

3.    7(a) Loan Program

Last but definitely not the least, is SBA’s most popular loan – the 7(a). Most business owners opt for the 7(a) loan because of its flexibility. You can use this loan for operational expenses, inventory and equipment purchases, seasonal financing, and even debt refinancing and real estate.

This type of loan offers up to $5 million and can last for seven to 25 years depending on your use. You can pay back the loan with monthly repayments and bank-level interest rates of 6% to 13%.

The Small Business Administration Minneapolis

The Small Business Administration Minneapolis offers all these and more for your small business. If you want to know more about SBA loans, SMB Compass can help. Feel free to call us via phone call at (888) 853-8922 or email us at info@smbcompass.com.