Aug 22, 2022
The objective of SBA is very clear. It approves only those business owners that can’t secure traditional funding options so that no business falls behind as well as the economic health of the country improves. The best thing about SBA-guaranteed financing is its loan programs. It has everything for every business owner so that they can survive in the competitive market.
Do you know the two most common SBA loan programs? They are SBA 7(a) loans and SA microloans. It’s because these two loan options majorly focus on small-scale business owners. Both the amount and loan terms are small but enough for small business owners to establish a strong place in their market. However, this doesn’t mean other business owners cannot apply for these loan options.
The goal of SBA 7(a)loans and SBA microloans is fairly similar. Yet, many business owners are unable to decide which funding option is right for them. To make your selection easy, we will discuss the differences between SBA 7(a) loans and SBA microloans.
SBA 7(a) loans are considered the most standard type of loan guaranteed by the SBA. Though it’s perfect for smaller organizations, other organizations also apply for the same because of the benefits it offers.
The name SBA microloans defines it perfectly. These microloans fulfill much smaller purposes than their7(a) counterparts. Another major reason is these microloans are administered through various non-profit lending organizations.
The use of SBA 7(a)loans is varied. They are not used for one or two but for numerous purposes, including purchasing new real estate properties, equipment, inventory, restructuring debt, and having additional working capital in hand.
Regarding SBA microloans, the approved fund can be used for purchasing new equipment, expanding business operations, and accessing needed additional working capital. Like SBA 7(a) loans, SBA microloans cannot be used to pay off existing debt.
In the SBA 7(a) loans program, the maximum amount is $5 million. On the other hand, the maximum loan amount in SBA microloans is $50,000 only. Rest the approved loan amount depends on different eligibility criteria and documentation.
The maturity of SBA7(a) loans depends on their use and the ability of the borrower to repay. For example, the term length for purchasing real estate will be longer than other uses of SBA 7(a) loans. There is no such fixed term for this loan. There is lots of flexibility for the borrowers.
The term length of SBA microloans is small compared to other SBA loans because the amount is less and the uses aren’t big. The term length is limited to 6 years.
The interest rate for SBA 7(a) loans depends on different factors, which include the prime lending rate, the size of the loan, the length of the loan, and an added premium. One important point to keep in mind regarding the SBA 7(a) loans is that if the amount is paid in less than seven years, it has a maximum interest rate of 4.25 percent above the prime rate.
In SBA microloans, the interest rates vary depending on the administrating partner. But, this loan type has an added premium of up to 8.5 percent.
The qualification criteria or process is the same for SBA 7(a) loans and SBA microloans.
The borrower should have a non-for-profit business that demonstrates a reasonable ability to pay the loan amount on time. Compared to traditional bank loans, SBA loans are easy to qualify for. The only point is that the approval isn’t guaranteed. The approval process is very quick but only if you connect with the right lender and professionals for the application processing.
We have answered the common questions that business owners often ask when they have to choose between SBA 7(a) loans and SBA microloans. And with these answers, we have explained the difference between these two SBA loan options.
The summary is that SBA 7(a) loans have a maximum limit of $ 5 million while the maximum limit of SBA microloans is $50,000. The SBA 7(a) loan terms are longer and are typically used for larger operations; on the other hand, the SBA microloan terms are shorter and the funds are used for much smaller expenses.
When choosing between SBA 7(a) loans and SBA microloans, you should examine your business plan, consider your use of funds as well as compare loan amounts and terms. The objective is that the funding option should fit your business's needs and help it fight the financial crisis.
The application process for SBA is short but a bit complicated. You should follow all the guidelines and submit the required documents on time to complete the application. Some documents are difficult to arrange and present before the lenders, reducing the chances of approval.
To avoid any problems in the SBA loan application process, you should work with professionals who are partnered with leading SBA lenders. Professionals will fill out the application on your behalf and help you process everything, increasing the chance of loan approval. Doing it yourself might be difficult and you might miss important elements.
