In most cases it takes money to make money.  Entrepreneurs are generally required to lay out some money in the form of an initial capital investment to insure that their business is adequately set up and ready to function.  In a previous post a few different ways to find start-up funding were mentioned.  One of the funding venues previously identified was the Small Business Association, a government agency set up to help set up and facilitate small business enterprises through various financial and educational programs.  The initial post only explained SBA programs generally.  Because government websites can be a bit cumbersome and difficult to navigate or understand, here is a list of specific SBA loan programs explained as simply and understandably as possible.

7(A) Loan Guaranty Program.

The 7(A) Loan Guaranty Program is a program where the SBA guarantees private loans up to a certain percentage of the total loan amount (85% of loans $150,000 or less, and 75% of loans $150,001+).  This program is especially helpful to entrepreneurs who are unable to secure loans or capital from more traditional sources or commercial loans.  The SBA in this case is essentially acting as an insurer, guaranteeing the bank that they will be able to collect 75-85% of the loan in the case that the entrepreneur defaults.

Well known companies that took advantage of the 7(A) Loan Guaranty Program: Callaway Golf, Outback Steakhouse, Intel.

CAPLine Program.

The CAPLine program is an excellent funding option for rapidly growing companies looking for access to short-term capital to finance expansion.  CAPLine funds are usually used to fund additional startup expenses, real estate purchases, equipment purchases, additional employment expenses, and working capital.  The CAPLine provides cash needy businesses with access to a line of credit (up to $200,000) underneath five different sub-programs (for the expenses and activities mentioned above).  Each of these five sub-programs have maturities of up to five years.  CAPLine is an excellent option for expanding small businesses and startups who know how to remain lean and manage costs effectively.  As traditional lending sources and lines of credit become more difficult to secure from commercial institutions, the CAPLine program remains as a lucrative and certainly viable option.

Microloan Program.

Micro=small.  Microfinance has turned out to be a fairly popular model of finance in recent years.  It is appealing for entrepreneurs because they can closely manage their growth and borrowing by only taking loans for what is immediately needed.  Microloans are appealing to lenders as well because they can lend less, and also enjoy extremely low loan default rates.  75% of entrepreneurs only require less than $100,000 to start up their business – with still many needing less than $50,000.  The SBA’s Microloan program guarantees loans from $100 to $35,000.  Loans are secured through non-profit agencies and are backed by the SBA.  Commercial lenders prefer not to offer such small loans as the interest charges and maturity terms do not offer a high enough level of profitability.  While the U.S. government has flip-flopped on the Microloan program, and has proposed to eliminate it on more than one occasion, entrepreneurs can take solace in knowing that many other non-profit institutions as well as commercial ones like  LendingClub.com and Prosper.com will continue to offer short-term (3 year) microloans to deserving small businesses and startups nationwide.