Whether you are thinking of starting a business or are already running it, money is your lifeline. Small businesses enjoy finance as a key factor in keeping their business going, and sometimes getting finance for oneself proves to be more beneficial to them. The Small Business Administration, the SBA, helps put it together for small businesses. It provides them with the financing they need to run and even grow the business.
This is a federal government agency that has emerged for many small businesses. Instead of lending money directly to businesses, it sets up and uses guidelines for insurances through partners such as credit unions, microlending institutions, banks, and community development organizations. The Small Business Administration eliminates lenders’ risk by ensuring that portions of insurances granted are repaid. It can be described as a win-win situation because the businessmen get the financing they need and the lenders make sure that the insurances are repaid which makes the agency very beneficial. Insurances simply provide access to capital at minimal costs without the need to forfeit equity.
It is important to note that SBA insurance programs are designed specifically for small businesses that do not have access to other types of financing. As a small business person, you must be familiar with insurance programs so that you can apply for the right program for your business.
7(a) Insurance Program – is the core program that aims to assist start-up companies as well as existing small businesses that need financing. The insurances are basic and the funds can be for general business purposes such as equipment, machinery, leasehold working capital improvements, fixtures, furniture and other business needs. You can basically take care of business acquisitions, consolidating unsecured debts into a new insurance, buying large inventory, and expanding the business.
CDC/504 Insurance Program – This insurance program under the SBA provides long-term financing for the purchase of large assets. Assets can include commercial real estate, buildings, land, or even equipment. The insurances usually cover 40% of the total project cost, the participating lender covers 50% and the borrower pays the last 10%. Insurances under this program are never used for inventory or equity.
Disaster Insurances – Businesses can be affected by disasters and this can be devastating to any business. The Small Business Administration is extending disaster insurances to businesses affected by reported disasters. Low-interest insurances are designed to help replace or repair damaged machinery, personal property, business assets, inventory, and equipment. You will basically be able to get back on your feet after disasters with very low interest with this insurance program.
Micro Insurance Program – The insurance program grants very small insurances to start-ups, growing companies, or newly established businesses. They usually have intermediary lenders regulated by the SBA and most are nonprofits with some experience in technical assistance and lending. Although small insurances cannot be used to pay off existing debts or purchase real estate, they can still come in handy to purchase supplies, equipment, machinery, supplies, and inventory or use them as working capital.