The US Small Business Administration (SBA) is an ally for all Eastern Kentucky entrepreneurs — including you. It’s important to understand the services and programs they offer so you can take full advantage of them.
According to the SBA, requests for small business loans are on the rise, including traditional bank loans and other sources. This means entrepreneurs face even more competition to get the cash they need to launch and grow.
Today we’re highlighting 4 particularly helpful SBA loans and programs: 7(a) loans, 504 loans, the microloan program, and HUBzone. Find out what they do, who they serve, and what you’ll need to qualify.
SBA 7(a) Loan Program
The 7(a) Loan Program is the SBA’s most frequently accessed program.
It provides financing for small businesses with special requirements, especially when real estate is part of a business purchase.
You can use the 7(a) Loan Program for:
- Short- and long-term working capital
- Refinancing current business debt
- Purchasing furniture, fixtures, and supplies
The maximum principal of a 7(a) loan is $5 million. Key eligibility factors include what the business does to receive its income, its credit history, and where the company operates.
7(a) loans are highly competitive. Having stellar credit will make it much more likely for the SBA to accept your application.
To qualify for this loan, you must meet the SBA’s criteria and currently operate as a for-profit, small business. They’ll want to see that you already have a reasonable amount of invested equity and have used personal assets to fund your business before seeking this loan.
And you can’t be behind on any existing debts with the US government.
Community Trust Bank issued more SBA loans in 2021 than any other lender in Kentucky, so you might want to check them out, too.
SBA 504 Loans
The CDC/504 Loan Program provides long-term, fixed-rate financing for up to $5 million. It offers 10- and 20-year maturity terms and highly competitive interest rates.
You must use 504 loans for major fixed assets that promote business growth and job creation. Qualified assets may include new or existing buildings and land, machinery, and equipment.
504 loans are also valid for improvement and modernization projects, such as streets, utilities, parking lots, landscaping, and facilities.
You have to obtain a 504 loan through a Certified Development Company (CDC). CDCs are SBA-certified community-based partners that regulate nonprofits and promote economic development within their local communities.
If you think a 504 loan is right for you, find a CDC in your area to start working with a qualified lender.
Many traditional lenders have minimum lending amounts that exceed the needs of small, growing businesses. As cash flow problems are one of the leading reasons for small business failure, microloans fill an essential need in the market.
SBA microloans help small businesses and certain nonprofit childcare centers start up and expand.
You can access $50,000 at a time through SBA microloan subsidiaries. The average microloan amount is approximately $13,000.
If you need less than $50,000 for working capital, inventory, supplies, machinery, or other assets, this program may be ideal for you.
The few lenders outside the SBA that offer microloans tend to do so at very high interest rates: sometimes as high as 18%. SBA-approved lenders shouldn’t offer microloans at rates higher than 13%. Depending on your credit history, they may offer rates as low as 8%.
It’s worth noting that you can’t use a microloan to pay off other debts or purchase real estate.
Contact an SBA-approved intermediary in your area to apply for a microloan.
SBA HUBZone program
SBA HUBZone uses the power of federal government spending to support small business growth in historically underutilized business zones (HUBZones).
HUBZone aims to use at least 3% of federal contract dollars to hire certified companies each year. It offers preferential consideration to HUBZone businesses bidding on open contracts and limits competition in other cases.
Companies qualified for the program include small businesses with their principal office(s) and at least 35% of employees residing within a HUBZone.
Joining the HUBZone program makes your business eligible to compete for the program’s set-aside contracts. HUBZone-certified companies also get a 10% price evaluation preference in full and open contract competitions.
If you plan to bid on federal contracts, follow these steps to pursue entry to the HUBZone program:
- Consult the SBA size standards to make sure you meet the first-level requirements. The company must also be 51%+ owned and operated by US citizens, a CDC, an agricultural cooperative, an Alaska Native corporation, a Native Hawaiian organization, or an Indian tribe.
- Check the HUBZone map to determine whether your headquarters is situated inside a zone.
- Ensure that at least 35% of your employees live in the HUBZone.
- Get a preliminary assessment via the SBA Certify website.
Optimizing your funding strategy
Unless you’re fortunate enough to bootstrap your company for the first few years, you’ll likely need to get funding to keep growing.
As you do your due diligence on your available funding options, bookmark this cheat sheet for a few critical process steps that can save you money:
- Always research at least 2-3 loan options before signing any contracts.
- Create a spreadsheet to compare loan terms, interest rates, repayment schedules, and fees side-by-side.
- Be wary of variable interest rates. Read the fine print — you may be subject to interest rates as high as a credit card for some or all of your repayment period.
- Check on a lender’s references. If they have long-term client relationships, that’s a good sign. If they have a terrible string of online reviews from past clients, you might want to consider other options.
Conclusion: Get funding for your small business in Eastern Kentucky
SOAR Innovation published the Complete Guide to Entrepreneurship in Eastern Kentucky — and it’s chock-full of helpful, actionable tips. Be sure to download it if you haven’t already.
SOAR also provides up-to-date funding resources for many use cases.
If you want more information on working with SBA loans and programs, reach out to your SOAR Innovation representative today.