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 business owners, who can then 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 do provide the cheapest financing solution for small businesses, the SBA itself doesn’t lend money. What they do is, they guarantee 75% to 85% of your loan, which decreases their level of risk. What this amounts to is, in the unfortunate event someone cannot repay their loan, the lender is guaranteed that they will recoup all of the money owed to them.
By lowering the lender’s risk, small business owners are able to secure much needed business funding. Your business gets financed, while lenders profit from interest payments. If you default on a loan, the lender loses little to none.
Top 3 SBA Loans
There are several types of SBA loans. However, there are three major kinds of SBA loans that attract a majority of small business owners:
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 can go as high as $50,000. The interest rates vary between 8% to 13% and the loan amortizes over a period of up to six years.
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 too purchase inventory and equipment, however, 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 largest lending programs. However, you can only use borrowed funds 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 repaid within 10 to 20 years. Interest rates average between 5% to 6% and come with an up front 3% fee . Lenders also require 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 carry out 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 the funds for operational expenses, inventory, equipment purchases, seasonal financing, and even debt refinancing or real estate.
This type of loan offers up to $5 million and can last from seven to 25 years depending on your use. Bank-level interest rates are also available and range from 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, the finance experts at SMB Compass can help you.
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