When aspiring entrepreneurs want to launch their new businesses, financial assistance goes a long way. Small-business loans are specifically given to entrepreneurs who are trying to start or grow their small businesses. Although these financial lines of credit are helpful, they must still be repaid in a timely, responsible manner. Here is information you should know should know about small-business loans and how they can be paid off.
What are small-business loans?
Small-business loans include any loan advertised and structured for the benefit of new or growing businesses. Although many loans are offered by various banks, the most well-known types come from the Small Business Administration (SBA). The SBA is a government organization that works with banks and credit unions to insure small-business loans. Some loans may not be SBA-backed, but a strong majority of those offered by private banks and credit unions are insured by the SBA.
What are the types of small-business loans?
There are four types of SBA loans. The most popular are 7(a) loans, which are general loans given to small businesses to launch or grow. Microloans are very small lines of credit given to businesses. CDC/504 loans are used to invest in equipment or real estate. Disaster loans help small businesses recover from natural disasters, such as floods or fires.
What are the SBA loan payment plans?
If you want an SBA-backed small-business loan, your bank or credit union will need to use SBA standards to establish what type of payment plan your business will have. This will be dependent on several variables, including your operating budget and business plan.
Payment plans will vary on the type of loan. For example, the SBA states that disaster loans will take into account the severity of the damage and the time for recovery. However, the disaster loans have a maximum maturity of 30 years to be paid off. The rules may also depend on what the loan is used for. For example, the general rules for 7(a) loans will depend on what the loan is used for. The SBA states that 7(a) loans used for real estate have a maximum maturity of 25 years, while 7(a) loans used for equipment need to be paid in 10 years.
What problems might arise with an SBA loan?
Although small-business loans can radically help aspiring entrepreneurs and established small businesses, there are still common problems with small-business loans. One is the immense detail needed to meet SBA guidelines. The SBA requires details of why a loan is needed and how the loan will be used; this will also influence the payment plan for the loan. All of these factors and their calculations can be a bit overwhelming. Because this information is required upfront, you must be careful not to underestimate or overestimate the loan amount or time allotted for repayment.