About SBA
loans- Everything you need to know fast
What is an SBA Loan?
Small Business Administration loan
programs are drafted in agreement between SBA agencies and lenders. Here, the
borrowers use the program while seeking for lenders for their small businesses.
Lenders do appreciate the SBA loan program as the SBA shoulders some of the
risk for lender by guaranteeing a portion of the loan amount. Because of the
guarantee, lenders can offer lower interest rate and flexible payment terms
than the smallest businesses would get.
SBA
Express and SBA loans serve as useful option for many SMBs, but they have
various demerits that you must look into prior to applying. In this blog,
you’ll find some of the facts to think of prior to making a decision.
Pros of SBA Loans
#Designed
especially for small business
SBA
Express loans and SBA loan do target small business. The SBA in partnership
with lenders creates guidelines to aim for aiding small business growth and
expansion. Unlike the conventional bank loans, the SBA loans are aimed mostly
at SMBs.
#Multiple
uses for the funds
SBA
express loans and SBA loans can be used for a huge array of expenses. As per
the SBA, one can use them for most business purposes that include real estate
purchases, working capital, equipment purchases, expansion, or start-up.
#Secured
loans
SBA
loans are secured. This means SBA agencies guarantees a percentage of loan
amount to the lender that reduces the risk.
#Happier
lenders
Because
the federal govt. guarantees SBA loans, so more lenders wish to offer financing
to small businesses through SBA loans. Actually, the lenders lower their
qualification criteria for small businesses that apply for SBA loans.
Cons of SBA Loans
#Personal
credit scores required
In
order to qualify for SBA loan and SBA express loan, you must have a high
personal credit score and good business credit. In case, both of your score is
less, you’ll not be eligible to apply.
#2+
years in business
Your
small business must be at least two years old to eligible for an SBA loan. That
can be an issue in case you’re one of the over 4, 00,000 new businesses that
appear every year and need operational capital to get started.
#Some
restrictions on expenses
Some
SBA loan programs have restrictions
about the capital which means the money they render will be used for particular
purpose. In case your want doesn’t fall within the SBA restriction, this isn’t the
right kind of funding for you. The way you plan to use the fund will have an
impact on your loan terms and you will want to think regarding this prior to
applying for the loan.
#Specific
eligibility requirements
Even
if it is easy to get approved for SBA loans than for traditional bank loans,
the eligibility criteria will still prove to be tough for many small businesses
to satisfy. The SBA identifies the eligibility based on criteria like the
character of ownership, where the business operates, and nature of the
business. So, you can find detailed info regarding the eligibility for SBA
loans on their official site.
How Do SBA Loans Work?
Each
small business owner needs to know what is an SBA loan is about, and how to get
eligible for one. As one of the lowest cost product out there, small business loans are the Holy Grail
when it comes to growing your business in a cost effective way.
But aren't they impossible to get
approved for?
We
have helped thousands of small business owners to successfully secure SBA
loans. With all the data and experience under our belt, we are confident to
render you the info you require to apply for an SBA loan.
By
knowing how the product work and what exactly the criteria are, you will know
if an SBA loan is the right product for your business.
Applying for an SBA Loan
While
SBA loans are slightly easy to quality for than bank loans, you must know
you’re still working with a bank in the end.
Now,
at major banks, getting an SBA loan can be a bit complicated and lengthy
process. Lenders want to review your financial and credit statement and will
want you to have collateral to secure the loan. They will also look at handful
of other documents from business plans to legal documents.
Even
with the govt. guarantee on their side, many small businesses don’t wind up
qualifying for SBA loans. And if they do, the process will take months to
complete.
Further,
an SBA loan’s low interest rate and long repayment terms are always worth the
wait.
What is the actual application
like? Here’s the deal:
While
applying for SBA financing, you can expect to finish the extensive loan
application and render documents such as a statement of how you will use the
loan proceeds, a description of your business, and information on your
collateral, financial statements, among others.
The
participating bank will look for applicants with great credit, a demonstrated
ability to repay the loan, profitable businesses, a solid business plan, and
one with great credit.
Your
borrowing history is mostly crucial to the bank you work with for an SBA loan.
What does your business requires,
there is an SBA loan for the same
You
can find an SBA loan option to cover every cranny and nook of the small
business. Some of the most common SBA loans are SBA express, 504, and 7(a). We
can break then down here for you to get an idea as which one will serve the
best for your small business.
SBA
7(a) Loan
SBA
7(a) loan is one of the very flexible SBA loans. You can use it to:
-
Buy materials, supplies, furniture,
machinery
-
Refinance your existing debt
-
Buy or expand an existing business
-
Cover construction costs
-
Buy land
If
you are seeking for a lot of cash, you can get 7(a) loan for up $5 million in case
you meet the entire eligibility requirements.
SBA
504 loan
These
loans are bit complex than 7(a). as you’d use a 504 to fund a project. Here, a
thorough examination of your project cost will come into play. When your loan
is funded, the lender will initially cover 50% of the cost and SBS will cover
40%. It means you will be responsible for covering at least 10% right off the
bat and be needed to guarantee at least 20% of the loan.
Here,
you can use the SBA 504 loan to finance assets, even if some soft costs can be
included. Example of qualifying the projects is given here under:
-
Refinance debt incurred through the
expansion of the business
-
Renovation of your equipment or facility
-
Buy long term machinery
-
Make or buy land improvements like
adding parking lots, landscaping, grading
-
Build new facility or renovate an
existing facility
-
Buy an existing building
SBA
Express Loan
In
case you require cash in a jiffy, the SBS express is the right loan for you.
Unlike the slow review process, here you can encounter with other SBA loans as
the applications are reviewed within 36 hours. This does not mean that you will
get access to fund that fast, rather it will still take 1 month to get the loan
funded. Here, the loan can be used as line of credit, commercial real estate
loan or as working capital.
