An SBA Loan is a loan backed by the United States Small Business Administration. These loans are available to small businesses that may not qualify for traditional financing. There are many different types of SBA Loans, and this article will cover them all! We will discuss the benefits of SBA Loans, how to apply for one, and the different types of loans that are available. If you are thinking about applying for an SBA loan, this article is for you!
What are SBA loans, and what do they offer borrowers?
SBA loans are small business administration loans. The United States Federal Government offers them to help businesses with their cash flow, working capital needs, and buying real estate or equipment.
SBA Loans can be used for various purposes, from working capital like short-term payroll needs to long-term financings such as buying real estate and purchasing equipment. The most popular uses will vary depending on your industry type (i.e., manufacturing vs. service).
SBA loans are a great financing option for small businesses because they offer lower interest rates and longer terms than most traditional lenders. In addition, the SBA guarantees up to 85% of the loan, which can help you get approved even if your business doesn’t have a perfect credit score.
What is the Small Business Administration?
The SBA is a government agency dedicated to small business growth. The organization offers several loan programs for a wide variety of needs and company types, but the SBA does not directly lend money; they partner with banks, community development organizations, and micro-lending institutions and set guidelines for how those lenders can structure loans.
When should I apply for an SBA loan?
Any time is the perfect time to apply! However, we recommend using it as soon as possible to get started reviewing your business and making sure it’s a good fit for us before beginning any paperwork.
Small business owners often have many questions about the SBA loan process. But before we get into those, let’s go over exactly what an SBA Loan is and how our application works. An SBA loan is a personal business line of credit that can be used for any purpose: investments, expansion, inventory purchases, etc.
Our most popular option is to pay off debt because it helps small businesses save money by lowering their interest rate and providing them with more flexibility in repayment periods (up to 25 years).
What are the qualifications for an SBA loan?
Your business must meet a few qualifications to be approved for an SBA loan. For example, your business must be profitable for the past two years, it must have good credit or a cosigner with good credit, and you must demonstrate that you need the loan to grow your business.
Intermediary lenders (approved community-based nonprofit organizations) set their eligibility requirements, so you’ll need to check with them. In addition, you will typically need to have decent credit to provide a personal guarantee. And may also need to provide collateral.
Additionally, the SBA only lends to businesses that cannot get traditional financing from a bank. Therefore, if you meet all of these qualifications, an SBA loan is an excellent option for you.
What are the documents needed for an SBA loan?
There are some standard documents needed while applying for an SBA loan. The following is a list of records that will be required:
- A business plan with three years of projected financials, including profit and loss statements, cash flow projections, and balance sheets.
- Business tax returns (personal as well) for the past three years. If your business is less than two years old, you will need to provide personal tax returns or other proof of income for previous employment or self-employment. You may also have to supply your most recent pay stub if applicable.
- If applicable, articles of incorporation or organization; franchise agreements; partnership agreements; trademark/patent certificates, etc.
- Resumes from all principals involved in the ownership and operation of the business.
- Copy of lease or purchase agreement if applicable. Landlords will need to provide a statement agreeing to subordinate their interest in the property to the SBA lenders. This is called an estoppel letter, and it essentially means that your landlord won’t try collecting rent from you during any period in which you are in default on your SBA loan.
- A list of the business’s significant suppliers and customers and their addresses and contact information.
- The amount of money you are looking to borrow and the reason for needing the funds (e.g., purchasing new equipment, refinancing debt, expanding).
How do you get the best interest rate on your SBA loan?
The interest rate on your SBA loan is essential, but it’s not the only factor to consider. It would be best if you also thought about the loan term and whether you want a fixed or variable interest rate. Again, your lender can help you choose the best option for your business.
What are the benefits of an SBA loan?
An SBA loan can offer many benefits for small businesses, including:
- lower interest rates than traditional loans;
- flexible repayment terms;
- a variety of uses, such as financing new equipment or real estate, working capital, or refinancing debt; and
- Availability from a wide range of lenders.
What are the different types of SBA loans?
SBA 7(a) Loans
An SBA 7(a) loan is the most common type of SBA loan. It can be used for many purposes like buying a business or a franchise, refinancing debt, making repairs, paying off taxes, and funding their working capital.
The most common type of SBA loan is the traditional loan, a seven-year term loan with a variable interest rate. The interest rate is capped at prime plus two percent.
SBA International Trade Loans
The SBA has a specific loan program for companies that want to export goods or services. These are known as international trade loans and can be used for project financing, working capital, equipment purchases, and many other uses. The interest rate on this type of loan cannot exceed prime plus two percent.
SBA Export Express Loans
There are also SBA Express loans, which have a fixed interest rate and are designed for small businesses that need money quickly.
If you need export loans, the SBA offers several types of loans geared toward exporting. They include short-term working capital for business expansion and fixed assets purchases to help long-term planning. The interest rate is capped at prime plus two percent, and there are no prepayment fees.
SBA Disaster Loans
There are also disaster loans, which the SBA offers to help businesses recover from economic losses after a disaster has occurred. The interest rate is capped at prime plus two percent, and there are no prepayment fees. These loans can be used for working capital or business expansion purposes and the purchase of fixed assets.
The SBA also offers microloans, which are loans up to $50,000 for businesses that have been in operation for at least two years. The interest rate is prime plus one percent, and there are no prepayment fees. These loans can be used for various purposes, including the purchase of inventory, furniture, or equipment.
Patriot Express Loans
The SBA also offers Patriot Express loans, designed to assist veterans in starting or expanding their small businesses. The loan amount is up to $500,000 with an interest rate capped at prime plus two percent, and there are no prepayment fees. These loans can be used for a variety of purposes.
What is the process of getting an SBA loan?
First, you’ll need to find out if you’re eligible for an SBA or a small business loan. By visiting the Small Business Administration’s website and filling out the SBA loan eligibility form, you can do this. It would be best if you were a small business with at least one year in business. Plus, you need to prove the loan proceeds will support your export development activity.
After you’ve determined that you’re eligible, then it’s time to start looking for an SBA lender. There are a few things that you need to know before applying for an SBA loan:
- How much money do I need?
- How long will my term be?
- What kind of interest rate am I looking for?
Once you’ve determined the answers to these questions, it’s time to start applying. You can apply online or in-person at an SBA lender that offers small business loans.
When you’re done with your application, make sure that everything is correct and submit it as soon as possible to start the underwriting process.
If you’re approved for an SBA loan, we’ll work with you to get your funds disbursed as quickly as possible. Congratulations! You’ve just taken the first step in growing your small business.
When is the best time to apply for an SBA loan?
The best time to apply for an SBA loan is now. The sooner you start your application, the quicker you can get that funding. Even if you have not yet decided on a business idea or a location to set up shop, it’s still essential to put in preliminary work by applying early. When it’s all said and done, there won’t be any surprises later down the road!
How do you prepare for your loan interview?
The U.S. Small Business Administration (SBA) offers a variety of loan products, but the most common one is the SBA Express Loan. These SBA loan programs are designed for businesses that need financing up to $350,000 and have been in business for at least two years.
You can apply for an SBA loan through a lending institution like a bank or credit union. That lender then applies to the SBA for a loan guarantee, which means if you default on an SBA loan, the government pays the lender the guaranteed amount.
The SBA requires an unconditional personal guarantee from everyone with at least 20% ownership in a company. This guarantee puts you and your assets on the hook for payments if your business can’t make them.
Now that you know how SBA loans work, it’s time to decide if this type of financing is right for you. An SBA loan can be a great way to get the money you need to start or grow your business. But it’s important to remember that not every small business is eligible for an SBA loan. EdFed offers Business Solution programs that give more information on SBA loans.