Borrowing is one way to create wealth. Loans are therefore very crucial in starting or establishing ones business. Borrowed cash can be invested and be used to repay the loan and this way one makes progress rather than when one saves cash and invest later in life when the business idea in question is already obsolete or old age has set in. Definitions Equity capital refers to the amount of cash raised by business owners through means that they don’t incur debt. Through the public or an underwriter like an investment bank, the company can sell stock to investors.
The company then can pick up with the cash obtained. Debt financing involves an investor borrowing cash from an issuer who issues him with promissory notes, bonds or other debt instruments with an aim of raising working capital. Equity financing entails generating revenue by issuing shares of stock at a public offering. So long as the shares remain active, which is very likely, they continue to generate income for the investors as long as they are held. Grants are funds availed to mostly to qualified entrepreneurs with the aim of expanding or starting a new business.
As the businesses grow and become profitable, they pay by the state by stimulating economic growth. 7(a) loan program 7(a) program is a small business administration (SBA) program put up under the small business act section7(a) aimed at availing small business loans to American small businesses which are not eligible for normal business lending through the SBA. The SBA guarantees part of the loans made and administered by commercial lending institutions rather than making the loans themselves. The loans are less risky to small businesses as part of the loan is guaranteed (SBA Program Office, 2010).
Types of 7(a) loan programs Express programs come in three forms. They include the SBA express, community express and the patriot express. The SBA express is available to small business borrowers who are given an accelerated turnaround time for the SBA review and they receive their response within thirty six hours. The community express loans are available to the borrowers in the nation’s underserved communities which are the SBA’s historically underutilized business zones (HUBZones) and the community reinvestment act (CRA) distressed identified communities.
The patriot express are designed for small businesses owned at least 51 percent by the veterans or members of the military community. The loans are therefore available to many people. However, they do not exceed a certain amount of cash making them unsuitable for bigger business ideas (SBA Program Office, 2010. a). The export express loans are meant for small exporters who have not more twenty employers and are aimed at expanding the export companies. The export express, export working program and the international trade program fall in this category.
The export express borrowers include manufactures, wholesalers, export trading companies and service exporters. They must have at least one year in business though not necessarily export business. The loan does not exceed $250,000. guarantee can be offered up to 90%. The export working employers eligible borrowers are manufactures with less than 500 employees and wholesalers with less than 100 employees. The loan amount does not exceed $2 million with a 90% SBA guarantee. The loan matures in just a year. The international trade loan program is available to companies negatively affected by imports.
They are meant to stabilize the companies by improving their competitive position and they may not exceed $2 million with a $1. 5 million SBA grant. Maturity is between 10-15 years for machinery and equipment and 25 years for real estate (SBA Program Office, 2010. b). The small Rural Lender Advantage is an initiative of SBA aimed at accommodating the unique loan processing needs of small community/rural-based lenders by offering a more simplified and streamlined loan application process and procedures, especially for smaller SBA loans.
In the process, communities challenged by population loss, economic dislocation and high unemployment stand to benefit through economic development. The process has been tested for several months and produced brilliant results and is thus being introduced to other regions too. The initiative loans do not exceed $350,000. for loans more than $150,000, 75% guarantee is given whereas for those less than $150,000 an 85% SBA guarantee is offered (SBA Program Office, 2010. a).
The special purpose loans have been introduced with an aim of providing financial assistance to employee stock ownership plans that have been impacted by NAFTA and to aid implement pollution control mechanisms. The Community Adjustment and Investment Program (CAIP) assist companies located in areas negatively affected by NAFTA. The eligibility for this type of loan holds that the company must be in a county noted to be adversely affected by NAFTA. The job creation component demands that for every $70,000 SBA guarantee a job has to be created and for 504 loans one job has to be created for every $65,000 SBA guarantee (SBA Program Office, 2010.
a). CAPlines program provides for small businesses the aid of meeting their short-term and cyclical working capital needs. The employee trusts is a program designed to finance employee stock ownership plans where the employee trust is part of an employer company sponsored plan and qualified under regulations set either by the international revenue service code or the department of labor. Qualified employee trusts that meet employee stock ownership plan conditions prescribed in all applicable IRS, treasury, and department of labor regulations are eligible for this loan.
The maximum loan is $2 million with a maximum guarantee of 85% for small loans that is those less than $150,000. The pollution control loans are specifically designated for pollution control by financing eligible small business companies planning and installation of pollution control facilities (SBA Program Office, 2010. b). Conclusion Being a business owner, I choose the export express loan where my interest in business lies and that will lead to my taking the $250,000 loan to improve my wholesale business.
With a 90% guarantee I would have peace of mind as I undertake my business. REFERENCES SBA Program Office. (2010. a). Programs and services to help you start, grow and succeed. Retrieved on 30th July 2010 www. sba. gov/financialassistance/borrowers/guaranteed/7alp/index. html SBA Program Office. (2010. b). 7(a) Loan programs. Programs and services to help you start grow and succeed. Retrieved on 30th July 2010 www. sba. gov/financialassistance/borrowers/guaranteed/7alp/FINANCIAL_GLP_7ALP_EXPRESS. html