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What Is an SBA Loan?

The Small Business Administration (SBA) is a federal agency that provides lending and other support to small businesses. The SBA offers many loan programs, which are made through lenders who partner with the SBA. These loans are government-backed, meaning the SBA guarantees a portion of the loan to the lender in case you 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 some great benefits for small business owners that traditional bank loans may not. Here are five reasons you should consider applying for a loan from the SBA 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 debt, which can save you money on 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 that you will have more time to pay off the loan and lower monthly payments.
• More flexible eligibility requirements. SBA loans often 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 qualify.
• 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 a portion of the loan. Because of the guarantee by the SBA on a portion of the loan, lenders are more likely to approve your loan request versus 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 discuss some of the basic qualifications for SBA loan programs:

• Good credit history. In order to qualify for an SBA business loan, you will need to have a good credit history. This means that you will need a minimum FICO score based on the specific loan you’re applying for.
• Ability to repay the loan. Lenders will also want to see that you have the ability to repay the loan. This means that you will need to have a strong business plan and financials.
• Business location. Your business must operate in the United States or its territories in order to qualify for this type of loan.
• Reason for the loan. You must use the loan proceeds for business purposes which include working capital, inventory, equipment, real estate, and more.

Types of SBA Loans

When looking for SBA financing, you need to be aware of the different loans offered by the SBA. Let’s take a look at the following loan programs for business owners:

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 quicker than traditional SBA 7(a) loans. They’re available for a loan amount up to $350,000 and are best for businesses that need fast funding and have strong credit histories.

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 expansion, renovations, or new construction with loan amounts ranging from $125,000 to $20 million.

SBA Microloans

SBA microloans are small, short-term loans that are typically used for working capital or inventory. These loans are best for businesses that have strong credit and need smaller amounts of funding.

SBA Disaster Loans

SBA disaster loans are available to businesses that have been affected by a declared disaster. Business physical disaster loans and economic injury disaster loans can be used for expenses such as repairs, replacement of equipment, 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 receivables, inventory, and other short-term working capital needs, and can be a vital source of funding for small businesses that are looking to grow their exports.

SBA Export Express Loans

SBA Export Express loans offer 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 are engaged in international trade. These loans can be used for a variety of 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 typically lower than the rates charged by commercial banks.

Do SBA Loans Have to Be Paid Back?

Yes, but it’s important to understand the terms of an SBA loan before agreeing to borrow money. The SBA loan interest rates are generally lower than the rate charged by commercial lenders. If the borrower defaults on the loan, the lender can seek payment from the borrower’s personal guarantors. Any personal guarantee you make may be partially or fully collateralized.

How Do You Apply for an SBA Loan?

The application process can be somewhat confusing and time-consuming. The first step is to contact your local SBA office or an SBA-licensed lender. Once you have found a lender, you will need to fill out an application and provide documentation such as business financial statements and tax returns. The lender will then submit your application to the SBA for approval. If approved, you will be required to sign a promissory note and provide collateral for the loan.

This article was written by Kevin Ocasio from Small Business Trends and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to [email protected].