June 20, 2022
SBA 7(a) Loans vs. SBA Microloans: How to Decide
Though the mission of the SBA is clear, the specific workings of the organization can sometimes be complex. Most notably, a common misconception is that the SBA is the sole provider of their loans. However, the SBA guarantees a portion of their loan amounts, with an approved SBA lender being the primary provider.
In addition, it’s important to note that SBA approvals are only given to business owners that can’t secure traditional funding options. Therefore, before applying for an SBA loan program, you’ll need to prove that you’ve applied and been rejected by traditional lenders.
There are numerous types of SBA small business loans, but in this post, we’re going to focus on 7(a) Loans and Microloans. The SBA loan that’ll make the most sense for your business will depend on your business size, goals, and current financial situation.
In this blog post, we’ll compare SBA 7(a) Loans and Microloans so that you can decide if either funding option is right for your small business.
What is the Difference Between SBA 7(a) Loans and SBA Microloans?
SBA 7(a) Loans
In general, 7(a) Loans are the most “standard” type of loan the SBA offers. Use of Funds: These loans can be used for numerous purposes, including,- Purchasing new real estate properties
- Equipment
- Inventory
- Restructuring Debt
- Having additional working capital on-hand
SBA Microloans
As the name suggests, SBA Microloans are meant for much smaller purposes than their 7(a) counterparts. These loans are administered through various nonprofit lending organizations. Use of Funds: Business microloans cannot be used to pay off existing debt, but business owners can utilize them for other purposes such as:- Purchasing new equipment
- Expanding your business operations
- Accessing needed additional working capital
Are There Other Business Financing Options to Consider?
Now that we’ve compared the SBA 7(a) and SBA Microloan options, you should be able to determine if either option fits your funding needs. However, don’t be discouraged if neither option is the right funding program for your business. Although the SBA 7(a) loan and microloan programs can benefit various business owners, they aren’t suitable for everyone. Due to this, you should also research other funding options before committing to a loan offer. Below, you’ll find an expansive list of other popular loan programs from the SBA and alternative lenders.- SBA 504 Loan: Your business must use the loan amount to create jobs or work to improve SBA-approved areas such as energy efficiency and public policy.
- SBA Disaster Loan: You may qualify for an SBA disaster loan if your business is in a declared disaster area.
- SBA Express Loan: This loan program is meant for business owners who need fast financing. Once approved, borrowers can receive funds in as little as 36 hours.
- Small Business Loans from Alternative Lenders: Small business loans from alternative lenders typically come with flexible loan amounts and terms, and there aren’t any restrictions on how you can use the funds.
- Merchant Cash Advances: If your business frequently accepts credit card sales, you could be approved for this lump sum financing option. You’ll remit the advance based on your credit card sales at the time, so there are no set terms.
- Bank Loans: As you probably know, banks provide business loans, but getting approved can be challenging and time-consuming.
- Business Lines of Credit: When you receive a revolving line of credit, you’ll receive a set amount of funds to use and pay back as needed. If you take out a non-revolving line of credit, you’ll need to reapply to get approved for additional funding.
- Business Credit Cards: Having access to a business credit card allows business owners to charge expenses to their card when necessary. However, following a budget, avoiding overspending, and paying your credit card bill on time are crucial.
- Invoice Financing: If you’re waiting on customers to pay their invoices, you can pursue invoice financing to ensure you have cash flow in the meantime.
- Bridge Loans: Many businesses, such as construction firms, need funds to bridge the gap between payments. Access to bridge financing can be beneficial if your business is paid at the beginning and end of a project.
- Equipment Financing: An equipment loan or lease can be the perfect funding option if you need funding specifically for equipment costs.
- Inventory Loans: Like equipment loans, inventory loans are meant solely for inventory expenses.