The Small Business Administration (SBA) is a unique institution tasked to help small businesses retain the loans they need to operate successfully. The SBA primarily offers four programs to help businesses secure the financial resources they require. A common misconception is that the SBA is a lending institution; the SBA's primary function is as a guarantor of loans made by private and other institutions. A fully developed business plan will help the bank's loan officer determine which program may be best for you. The following sections briefly explain each SBA program:
Basic 7(a) Loan Guaranty: this is the primary tool used by the SBA to help qualified businesses obtain financing when they might otherwise not be eligible. It is a flexible program that can be guaranteed for most sound business purposes such as: working capital, machinery and equipment, furniture and fixtures, etc.
Certified Development Company (CDC), a 504 Loan Program: this program offers long-term, fixed-rate financing to small businesses that require machinery or equipment or real estate for modernization and/or expansion. A business plan written for a 504 Loan Program should be structured specifically for CDC (private, non-profit corporations set up to contribute to the economic development of their communities and regions).
Microloan, a 7(m) Loan Program: this is one of the most common small business loan programs and doesn't always require that the entrepreneur provide a full length business plan; however, a business plan is still generally a good idea for debt planning. This loan program allows for short-term loans of up to $35,000 to small businesses and not-for-profit childcare centers.
Loan Prequalification: this program allows for business loan applicant to have their loan application analyzed for loans less than $250,000. The loan prequalification allows for considerations such as character, credit, experience and reliability rather than just assets. A business plan is vital to prove to the assigned SBA-designated intermediary strength in the loan application.
We believe that any business taking on debt to support operations or expansion should considering working through a business plan. We help entrepreneurs understand just what their business will look like from a cash-flow perspective before they take the leap into a loan.