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Tuesday, May 20, 2014

Loans for entrepreneurs and start up businesses

By Darrell J. Hunt

Are you an entrepreneur with a great vision but don’t have the capital to get your idea off the ground? These days it is especially hard to find funding for start ups, but things are not as bad as they appear. Many organizations are out there looking to lend a hand to people that have the energy and know-how to start a great business.
Startup business financing
Several SBA loan programs help startups
SBA Loans

SBA or small business administration loans are loans that are made by banks, credit unions or nonprofit organizations. The difference though is that the United States government plays a role in the loan process. Below we will discuss some of the options available through SBA loans.

SBA 7(a) Loan Program

The 7(a) is the most common SBA loan. When you borrow from your lender part of the loan amount is backed by the SBA. This type of financing shares the risk between the bank, or other lending institution, and the US government. The 7(a) loan is especially designed for businesses that export to foreign countries, businesses located in rural areas and other specific business types. The funds can be used for the acquisition, operation or expansion of existing operations or to establish a new business. Some uses might include the purchase of buildings, land, machinery, furniture and supplies. The funds can also be used for working capital.

SBA CDC/504 Loan Program

The 504 program gives small businesses favorable financing over the long term for the purposes of expansion or modernization. The maximum loan amount is $5 million, and the loans are made in cooperation with a Certified Development Company (CDC). CDCs are nonprofit organizations that promote economic development by providing small business financing. 504 funds may be used for the purchase of buildings, land or land improvement, construction of facilities, machinery and certain types of refinancing.

SBA Microloan

The Microloan program loans up to $50,000 and is used for short-term needs and for some types of nonprofit child care centers. The funds come from nonprofit intermediaries with financial and lending experience. The funds can be used for working capital and purchases of inventory, fixtures, furniture and machinery. The intermediary also provides business technical assistance to the borrower. The loan term can be for up to a maximum of six years and collateral is required as decided by the loan intermediary.

Visit prlog.org for full details about all SBA loan programs.

Non-SBA financing for entrepreneurs

There are other options available outside of the SBA programs mentioned. One is peer-to-peer lending. In this model the borrower presents a plan, loan amount and posts the information on a peer-to-peer online lending platform. Multiple investors review loan listings and choose to lend to the proposals that attract them and payment terms are negotiated (time, rate, etc…). Borrowers make fixed payments and the lenders (also called investors) receive their payment with fees going to the peer-to-peer platform.

Many times the interest rates are very favorable to the borrower on these platforms, but the trick is to present an attractive plan and show the ability to make the payments.

Friends and family

It should never be underestimated the utility of tapping your social contacts who might be interested in investing in your startup vision. The presentation should be professional and polished with all terms and conditions spelled out clearly. An honest and realistic projection of returns should be presented along with a clear business plan. The destination of the funds should be spelled out clearly as well.


For the entrepreneur there are many government and non-government backed options available to get financing that turns your great business idea into reality.

Image license: Mike, CC BY 2.0

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