SBA Loans for Home-Based Businesses

Obtaining financing for a new venture is never easy, and finding funding for a home-based sole proprietorship business is even harder. But the Small Business Administration (SBA) has made it much easier for home-based businesses to find the financing they need. If your bank has turned down your business loan application, don’t despair. You may be able to find funding for your business through the SBA’s numerous funding options.

The SBA offers three distinct types of financing for small businesses. Study them carefully to make sure that you are applying for the loan that is best suited to your business.

The Microloan 7(m) Loan Program is the most popular loan for home-based businesses. You can apply for up to $35,000 for your business needs. You can use this money in a variety of different ways, such as purchasing needed inventory to run your business, buying necessary supplies or furniture, getting the computer equipment that you need, or for working capital. However, you will not be able to use this loan to pay off any existing debts or to purchase land or real estate for your home-based business.

With the Microloan program, you don’t borrow money directly from the SBA; rather, the SBA guarantees your loan with a lender who provides the loan to you.

The Basic 7(a) Loan Guaranty is perfect for businesses that require more options for their loans and are having trouble getting funding through traditional lenders. This program offers more flexibility and, unlike the Microloan 7(m), can be used to pay off your debts and acquire property for your business. You can also use your 7(a) loan for working capital or to purchase supplies, equipment, and furniture.

The Certified Development Company (CDC) 504 Loan Plan is primarily for larger businesses that require a great deal of money to purchase real estate or expensive equipment. These loans can go as high as $1.3 million and are generally out of the reach of most home-based business. However, if you need to purchase high priced equipment for your business, you may be able to use this type of loan.

The CDC 504 Loan Plan is more complicated than the first two loans offered by the SBA. The business owner typically provides 10 percent of the equity for the purchase, another lender covers 50 percent, and the 504 loan will cover the remaining 40 percent.

While it can be difficult to get a loan for a home-based business, the SBA may be able to help. With these three programs, the owner of even the smallest small business can get the money he or she needs to become successful.

Check out the AllBusiness Practical Guide to SBA Loans for more information. Also read “Financing Your Home-Based Business” and “Ten Tips for Financing Your Home-Based Business” for other home-business financing options.