SBA loans are business loans guaranteed by the Small Business Administration. Through the multiple SBA funding, the govt. agency renders SBA loan guaranteeing up to 80% of the loan amount through SBA approved lenders. The three main programs let the borrower to purpose that includes buying real estate, refinancing debts, buying equipment or inventory, working capital through the guaranteed loans.
SBA loans are small business loans guaranteed by the SBA and issued by participating lenders. This guarantees up to 80% of loans as per the agency lending statistics.
In case you are searching to open a new location, refinance an existing loan, or hire employees, SBA loans serves to be a good option. The SBA loan rates and terms usually are more manageable for borrowers than other kind of financing.
If you are seeking how to fund the expansion of your business, you should opt for SBA loan. Even if this is not for every kind of business owners, but these are viable option for those who can’t obtain other financing methods to grow their business.
Most importantly, when a qualifying business applies for this loan, he is applying for a commercial loan, that is structured as per the SBA needs with a guaranty. Now, the small business owners and borrowers who have access to other financing with reasonable terms are not eligible for these loans. But, this is good when the owner didn’t actually qualify for traditional bank loan and has a particular use of funds to help grow his business.
Who Qualifies for an SBA Loan?
Securing a small business administration loan is not an easy task. But when it comes to applying for it, small or newer ones can qualify for it. The most crucial element will be the credit score. SBA loans are for business owners with strong borrowing history.
So, be prepared as these loans need lot documentation, attention, energy and time.
One shouldn’t believe any lender who promises to give SBA loan today. It is definitely not a loan that you can apply and receive within few days. These loans are fit for growing your business and refinancing other debt at the lowest available rate.
You can find it hard to qualify for SBA loan in case your company has a limited track record, or mostly when you have poor credit. Actually, the small business administration and your lender stick their neck out on the belief that you are a reliable borrower.
How Do You Apply for SBA Loans?
There are many local and large banks that offer SBA loan. The bank lenders will have extensive loan application, seeing at the financial detail of your business. At the min, the loan application at a traditional bank will take a couple of weeks to process.
For a quicker and easier process, you can apply online to us and connect to top SBA lenders. Some of the essential documents you’ll require here are:
- Business debt schedule
- Business plan
- Personal tax returns
- Profit and loss statement
- Balance sheet
- Bank statements
- Voided business check
- Driver’s license
The perfect place to start is the SBA site that include loan application checklist. You can use the below info to gather the documents, including the business records and tax returns.
Here are certain documents you will require prior to applying.
- Loan application history
- Business lease
- Business license or certificate
- Business tax returns
- Personal income tax returns
- Personal financial statement
- Statement of personal history
- SBA’s borrower info form
You can ask the SBA district officer for the name of the approved lenders. The agency also did setup the SBA tools to match the potential borrowers with lenders. Banks follow SBA guidelines but use their own under writing criterion to determine loan applications.
How to Choose the Right SBA Loan Program
There are lot many types of SBA loans out there, with 3 programs being the most popular ones. These are:
- The SBA 7(a) loan program
- SBA micro loan program
- The CDC/504 loan program
How do you know which one is right for you?
The SBA loan program will let you to apply that depend on goal of your business, on age, and on the size.
The most popular program is the SBA 7(a) loan that work best for most business with general financial requirements such as renovating a location, refinancing old debt, expanding working capital. Here are the details of an SBA 7(a) loan.
- For the purchase of major fixed assets
- Repayment terms of 10 or 20 years
- For general business financing requirement
- Repayment terms of up to 10 years or 25 years
Further, another popular SBA loan program is the SBA micro loan program. The SBA offers micro loans to new and small business seeking for loans. While these loans are small, they are not actually said as shirt term as term lengths get extended over a long time period. Some details regarding the SBA micro loans are:
- Up to $50K in loan amount
- Repayment terms up to 6 years
- For expanding or starting a new or small business
In case you fee unsure about which SBA loan program to opt, you can talk to our experts and get help and options to decide which program is right for you and also know whether you will qualify for it or not.
If you are not there yet, we will work with you to graduate your business up to the SBA loan, for the most cost effective and long term business loan option.
The Types of SBA Loans
#1. All purpose 7(a) loan program
The most popular SBA loan program is the 7(a) loan. This is designed to render funds for a broader list of businesses. It targets small companies and identifies whether a company is small by its number of employees or annual revenues.
The max loan amount available under the 7(a) program is $5 million. This loan is a general purpose loan and the fund is utilized for any business requirements. These include:
- Refinancing existing obligations of your business
- Acquiring another company
- Buying land and a building
- Funding working capital
- Starting a new business
Most 7(a) loans are used to buy assets like equipment and real estate because of favorable conditions that let one to repay the loan over the useful life. The long repayment period keeps payment low, meaning more capital to stay in your business.
Now, SBA loan does have some restrictions on how these are used. Funds guaranteed by the SBA cannot be used to fund any investment, or any passive business activities such as buying a building that will be leased to another business. These loans cannot be used to reimburse a business owner for money priory invested, or repay money owned to the govt. like the taxes.
#2. SBA Express Loans
SBA Express loan is another option under the 7(a) program. It renders the lender the flexibility to offer a revolving loan structure for a particular time. What this means you can draw funds for some amount of time paying only interest and treating the fund like line-of-credit, prior to repaying the loan through principal or monthly payment of interest. The max term on this loan is 7 years.
#3. 504 Real Estate and Equipment Loan
In case you require a loan to buy machinery or real estate, a 504 loan could help. This loan works differently from 7(a) loans. Here, the applicant has to give equity contribution as low as 10% of the asset’s buying price.
Most of these loans are structured and will work in tandem with the lender to give 40% of the project funding. Also, a conventional lender like credit union or bank provides at least 50% of the financing. The process here is more complex than other forms of financing as there are two participating lenders to collaborate.
Interest rate for 504 loans is fixed for 20 years which is 10 years for equipment loan and the asset you buy will serve as collateral for the loan. Here the personal guarantee is needed.
The Bottom Line
Prior to applying for any kind of business loan, it is wise to assess your business financial health and requirements. The small business administration suggests you to consider the strength of your industry, and know how to use and repay the loan.
So, it is essential to develop a business plan to answer the questions, review a substantial, and have well though plan prior to approving the loan to expand or launch a business.
A traditional business loan will usually be fast to get and have low fees. Here, SBA loans offer crucial benefits including being able to get a loan at every stage of the business growth.