When you’re launching a small business, finding adequate funding can be a major obstacle. Even if you have the greatest business idea of the century, banks are reluctant to loan money to a brand new entity with no collateral and limited financial records.
Fortunately, the government takes a special interest in supporting small businesses to fuel job growth, lift communities, and boost tax revenue. The government formed the Small Business Administration in 1953 to help bridge the gap between small business owners and banks, and since then the SBA has helped thousands of entrepreneurs launch and grow their businesses.
SBA-Backed Small Business Loans
The Small Business Administration doesn’t lend money directly to small businesses, but the agency is instrumental in helping small businesses obtain loans with local lenders. The SBA makes it easier for small businesses to access capital by reducing the risk for lenders. It also protects small businesses by setting guidelines for SBA loans made by partnering lenders, community development organizations, and micro-lending institutions.
Small business loans backed by the SBA offer competitive terms, with interest rates and fees comparable to standard non-guaranteed loans. Some loans include counseling and education programs to help you launch and lead your business. They also offer unique benefits like flexible overhead requirements, lower down payments, and no collateral, depending on the type of loan.
SBA loans can range from as little as $500 to as much as $5.5 million dollars. You can use the funds for most business purposes from working capital to long-term fixed assets, though some loans will specify what you can use the funds for. It’s best to discuss your case with an SBA loan specialist before filling out the paperwork to ensure the loan in question matches your needs.
SBA 7(a) Loans
The 7(a) program — the SBA’s primary, most popular type of loan — is what most people have in mind when they think about an SBA loan. With the potential to provide up to $5 million, proceeds from a 7(a) loan may be used to buy a small business, expand a business, purchase new land (including construction costs), refinance existing debt, repair existing capital, and purchase assets like materials, supplies, fixtures, and machinery.
To qualify for an SBA 7(a) loan, you must have a sound business purpose in mind, a good plan in place, and demonstrate a need for funds. Your business must be a for-profit entity doing business in the United States, and the business must be considered small within the particular industry. You’ll need to demonstrate an ability to fund some of the business with your own equity, and you must have tried to use other financial resources (including personal assets) before applying for the loan.
SBA 504 Loans
SBA 504 loans are great for expanding and modernizing small businesses. Sometimes referred to as Certified Development Company (CDC) loans, an SBA 504 loan is intended to help a business grow with funds to purchase land, buildings, equipment, machinery, and improvements like parking lots, utilities, street improvements, grading, and landscaping. SBA 504 loan funds may also be used to modernize, renovate, or convert existing facilities.
Eligibility requirements for an SBA 504 loan include a tangible net worth of less than $15 million, an average net income of less than $5 million after taxes for the last two years, and proof that your business can repay the loan on time based on the projected operating cash flow for the business. Of course, the standard SBA requirements also apply, too. You’ll need a feasible business plan, relevant management expertise, and proof that you’ve tried to use other financial resources (including personal assets) already.
SBA 504 loan limits and terms are based on how the funds will be used. Loans for land and buildings typically carry a 20-year term, while loans for equipment and machinery are for 10 years. There is a prepayment penalty for SBA 504 loans during the first half of the loan.
Arizona Banks That Offer Small Business Loans
There are 40 banks in the state of Arizona that offer small business loans: Alliance Bank of Arizona, Arizona Central Credit Union, Arizona Bank & Trust, Arizona Business Bank, Bank 34, Bank of America, Bank of Arizona, Bank of the West, BBVA Compass Bank, BMO Harris Bank, BNC National Bank, Comerica Bank, Commerce Bank of Arizona, Enterprise Bank, Grandpoint Bank, Great Western Bank, Horizon Community Bank, Johnson Bank, JP Morgan Chase Bank, Meadows Bank, Metro Phoenix Bank, Midfirst Bank, Midwest Regional SBL, Mohave State Bank, Mutual of Omaha, National Bank of Arizona, Stearns Bank, T Bank, UMB Bank, US Bank, Vantage West Credit Union, Wells Fargo Bank Arizona, Western Bank, and West Valley National Bank.
There are also eight specialty lenders that offer small business loans in Arizona: Business Development Financial Corporation, CDC Small Business Finance, Mountain West Small Business Finance, Southwestern Business Finance, Prestamos Small Business Lending, Accion, Portable Practical Educational Preparation (PPEP), and Local Initiatives Support Corporation (LISC). Some of these specialty lenders are an excellent resource for micro loans for small businesses.
Arizona Small Business Administration Resource Guide
The Arizona District Office of the Small Business Administration publishes an annual Small Business Resource Guide with excellent resources for local business owners and entrepreneurs. The topics and resources covered in the annual guide include:
- Local SBA resource partners
- Local funding programs
- Financing
- Investment capital
- How to start a business
- How to write a business plan
- Programs for veterans
- Programs for entrepreneurs
- Programs for Native Americans
- Federal research and development
- SBA disaster loans
- How to prepare your business for an emergency
- SBA contracting programs
- Woman-Owned Small Business Certification
- Tips for finding government contracting opportunities
For assistance in-person, you can visit the SBA Arizona District Office in Phoenix at 2828 North Central Avenue, Suite 800. You can also reach out for assistance by phone at (602) 745 – 7200, or visit their web page online at www.sba.gov/az.
Receive Help With Your Small Business Loans
When it comes to the important aspects of your business, such as applying for a loan to provide money for growth and development, you want to make sure that you do everything correctly. Not only will this help you actually acquire the loan, but it will set you up with a good foundation to recover the money and make your small business successful. It is for these reasons that working with a small business attorney is so important, especially during the initial phases of starting your business or during a period of growth.
Working with a small business attorney could be the difference between your small business being a short-term operation and your business growing into everything you know it can be.
Call JacksonWhite’s Small Business Law Team at (480) 464-1111 to discuss your case today.