Most loans provided with the assistance of the Small Business Administration are not direct loans. Instead, businesses take the loans from a private lender, and the SBA issues insurance on the loan in the form of a guarantee. There are some programs, though, where the SBA directly funds the loan. These include the 504 Loan program, the Micro-Loan program and the Disaster Assistance Loan program. In each case, funds are disbursed according to a specific schedule.
The 504 Loan program, also known as the Certified Development Company (CDC) program, allows for an indirect disbursement of funds. The SBA provides the loan money directly to a local non profit organization, called a CDC. The CDC then disburses the funds to a borrower. The Micro-Loan program involves a much lower financing limit, but the loans go straight from the SBA to the borrower. With the Disaster Relief Program, loan funds are given to victims of specific disasters as quickly as possible directly through the SBA.
You will be informed of your loan disbursement schedule when your loan is approved. The SBA will send documents containing all information regarding how your funds will be disbursed. Each loan program disburses funds according to a unique schedule. For example, the SBA attempts to fund disaster loans as quickly as possible. In fact, those loans that were issued to victims of hurricanes Katrina, Rita and Wilma were set to go out within 45 days of their approval.
Once you have received your loan documents from the SBA, the SBA will in turn ask you for a set of documents or additional information in return. This may include copies of any liens, property deeds or titles needed to complete your loan. For example, if you are placing property as collateral, you will need to supply the deed to that property. After you follow the written instructions for sending in these documents, you will begin to receive your loan funds. Small loans are disbursed in a lump sum, and larger loans come in small portions. You may need to submit a progress report on the funds you have received in order to receive your next scheduled disbursement.
If you cancel your SBA loan for any reason before it is fully disbursed, you will not be liable to repay the amount you have not yet received. For this reason, it is essential to keep records of the funds you have received as you go. Some borrowers cancel the loans if they decide to close their business or stop a planned expansion.
Many people assume they will receive direct loans from the SBA if they have been approved for an SBA loan guarantee. On any loan guarantee, such as a loan from the 7a Loan program, you will actually receive funds from a private lender. This means you will have to contact that lender to determine how the funds will be disbursed.