SBA loans can be a great way to get the financing you need to start or grow your business. SBA lenders offer a variety of loan products, each with their own terms and conditions. This article will help you understand the different types of SBA loans available and how to choose the right one for your business.
What is an SBA loan?
The Small Business Administration (SBA) is a federal agency that provides loans and other support to small businesses. The SBA offers many loan programs, which are made through lenders that partner with the SBA. These loans are backed by the government, meaning the SBA guarantees a portion of the loan to the lender in the event of default. This guarantee makes it easier for lenders to approve small business loans.
Why You Should Consider an SBA Loan for Your Small Business
SBA guaranteed loans can offer great benefits for small business owners that traditional bank loans may not. Here are five reasons why you should consider applying for an SBA loan to help finance your small business:
- Lower interest rates. SBA loans typically have lower interest rates than traditional bank loans. You can use this loan to refinance your debt, which can save you money in interest and help you get out of debt faster.
- Longer repayment terms. They tend to have longer repayment terms than traditional bank loans. This means you will have more time to pay off the loan and lower monthly payments.
- More flexible eligibility requirements. SBA loans typically have more flexible eligibility requirements than traditional bank loans. Loan proceeds can be used for a wider range of purposes, and businesses with less than perfect credit may still be eligible.
- No collateral is required. Many SBA loans do not require collateral, making them a good option for businesses that do not have the assets to use as collateral.
- The government guarantees part of the loan. Because of the SBA’s guarantee on a portion of the loan, lenders are more likely to approve your loan application compared to a traditional bank loan.
How to qualify for SBA business loans
Qualifying for a small business loan through the SBA can be a lengthy process. Let’s talk about some of the basic qualifications for SBA loan programs:
- Good credit history. To qualify for an SBA business loan, you must have a good credit history. This means you will need a minimum FICO score based on the specific loan you are applying for.
- Ability to repay the loan. Lenders will also want to see that you have the ability to repay the loan. This means you will need to have a business plan and solid finances.
- Business location. Your business must operate in the United States or its territories to be eligible for this type of loan.
- Reason for the loan. You must use the proceeds of the loan for business purposes that include working capital, inventory, equipment, real estate, and more.
Types of SBA Loans
When looking for SBA financing, you need to know about the different loans that the SBA offers. Let’s take a look at the following business loan programs:
SBA 7(A) Loans.
The SBA 7(a) loan program is the most popular type of SBA loan. These loans are available for various purposes including working capital, expansion, equipment and property. You can receive a maximum loan amount of $5 million, with repayment terms of up to 25 years.
SBA Express Loans
SBA Express loans are smaller and faster than traditional SBA 7(a) loans. They are available for a loan of up to $350,000 and are best for businesses that need quick funding and have a strong credit history.
SBA 504 Loans
SBA 504 loans are available for the purchase of fixed assets such as real estate or equipment. They can be used for expansions, renovations or new construction with loan amounts ranging from $125,000 to $20 million.
SBA microloans are small, short-term loans typically used for working capital or inventory. These loans are best for businesses that have strong credit and need smaller amounts of financing.
SBA Disaster Loans
SBA disaster loans are available to businesses that have been affected by a declared disaster. Business physical disaster loans and financial injury disaster loans can be used for expenses such as repairs, equipment replacement, and working capital.
SBA Community Advantage Loans
SBA Community Advantage loans are available to businesses in underserved markets. These loans can be used for working capital, equipment, expansion and property.
SBA Export Working Capital Loans
The SBA Export Working Capital loan program is specifically designed to help small businesses finance their international sales. These loans can be used to finance accounts receivable, inventory and other short-term working capital needs, and can be a vital source of finance for small businesses looking to grow their exports.
SBA Export Express Loans
SBA Export Express loans provide quick financing for businesses that want to expand their operations by exporting goods or services. This program provides loans of up to $500,000, with terms of up to 12 months, for small businesses that need working capital to support their export activities.
SBA International Trade Loans
SBA International Trade Loans are available to businesses that engage in international trade. These loans can be used for various purposes, including working capital, export financing, and the purchase of equipment and real estate.
What is the most common SBA loan?
The most common SBA loan is the 7(a) loan program. This program offers a variety of loans for businesses that need working capital, equipment financing or real estate financing. The interest rate on these loans is usually lower than the rates charged by commercial banks.
Do SBA Loans Have to Be Repaid?
Yes, but it is important to understand the terms of an SBA loan before agreeing to borrow money. Interest rates on SBA loans are generally lower than those charged by commercial lenders. If the borrower defaults on the loan, the lender can request payment from the borrower’s personal guarantors. Any personal guarantee you make may be partially or fully guaranteed.
How do you apply for an SBA loan?
The application process can be a bit confusing and time consuming. The first step is to contact your local SBA office or an SBA licensed lender. Once you’ve found a lender, you’ll need to fill out an application and provide documentation such as company financial statements and tax returns. The lender will then send your application to the SBA for approval. If approved, you will need to sign a promissory note and provide collateral for the loan.
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