An SBA loan is a long-term, low-interest small business loan partly backed by the U.S. government.

SBA LOANS

An SBA loan is a low-interest, government-backed loan, with the longest term and lowest rates available. Repaid monthly, it is available to businesses that have been in business for at least two years. Collateral is required for loans of more than $25,000 in some situations.

Every single year, 30% of all small businesses fail simply because the owners have run out of money.

 

Unbelievably, this is only the second biggest reason that most small businesses fail – but it sits right behind the 42% of all small businesses that fail because the business owners did not accurately assess their market with both eyes open.

 

Combine all of this with the fact that only about 50% of all small business owners get approved for traditional financing through banks and credit unions, that 64% get approved through institutional lenders, and that only 56% of small business owners get financing through alternative lending options is easy to see why so many struggle when they need financing these days.

 

Thankfully though, the US Small Business Administration (SBA) was established to help businesses grow and flourish by providing them with the financing they need to take their operations to the next level.

 

Through a variety of different SBA funding programs, this governmental agency provides loan guarantees of up to 85% of the entire loan amount through SBA approved lenders – giving traditional lenders a lot more safety and security to place bets on entrepreneurs they might not have been willing to finance in the past.

 

If you’re interested in moving forward with an SBA loan, you want to bake close attention to the inside information shared below!

 

Pros

 

• Incredibly low down payments required for high levels of financing
• Very long repayment terms
• Reasonable interest rates tough to find elsewhere
• Applicable to a wide variety of businesses and business purposes

 

 

Cons

 

• The application process is long and drawn out
• The approval process is just as long and just as drawn out
• Entrepreneurs may have to put up collateral to secure these kinds of financing packages

 

What Kinds of Business Owners Qualify for SBA Lending Packages?

 

Right out of the gate it’s important to understand that not everyone that goes for an SBA loan is going to get approved for this kind of financing.

 

While any business – including those that have just started up – can apply for SBA lending actually getting approved can be a tricky thing. The number one factor that’s going to determine your approval rate is your credit score – those that have a strong borrowing history already under their belts are going to be a lot likelier to land these kinds of financing packages.

 

You should know right away that the application process is going to take a lot of time, a lot of energy, and a pile of paperwork. You are after all dealing with the US federal government and nothing they do moves quickly or efficiently, so make sure that you are ready for the long haul.

 

Most small business owners that get qualified for financing from this organization:

 

• Owned businesses with annual revenues north of $180,000
• Had personal credit scores that of at least 680 (on average)
• Had owned their business – or other businesses – for at least four years

 

Again, these aren’t the minimum requirements you need to meet to be approved for SBA loans, just that this is what the average business owner that gets approved for lending from this organization looks like.

 

What’s the SBA Application Process like?

 

The overwhelming majority of traditional banks and credit unions in your local area – regional as well as national organizations alike – are likely to have been preapproved as SBA lenders.

 

If you’re wondering whether or not your bank or a bank you’re interested in moving forward with has been given SBA approval it takes just one quick phone call to find out. After that, you only need to visit the offices directly in person and begin the SBA loan package process – and the professionals at the bank will help you walk you through this step.

 

You will want to make sure that you bring important documents to streamline the process with you during this meeting, including:

 

• Your drivers license or government issued ID
• A voided business check to your business bank account
• Bank and financial statements for your business
• Balance sheet and P & L statements
• Tax return information for both you and your business
• A detailed business plan
• A detailed business debt schedule

 

The financial institution you’re pursuing your SBA loan through will be able to walk you through the rest of the process and let you know what other kinds of documents or paperwork needs to be processed and when it has to be processed as well.

 

How Exactly Do SBA Loans Work?

 

SBA loans are considered the “Holy Grail” of business financing, mostly because they offer a fantastic line of financing you can take advantage of for a multitude of business purposes while also including friendly interest rates and repayment terms you’ll have a tough time finding anywhere else.

 

There are a couple of different SBA loan programs available about the three biggest and most popular programs include the:

 

• 7(a) Loan Program
• Micro Loan Program and
• CDC/504 Loan Program

 

The 7(a) loan program can provide you with up to $5 million in financing straightaway, with a repayment timeline that stretches out to 10 years (for working capital style loans) or 25 years (for commercial real estate lending packages) and also has a tremendous amount of flexibility about how you use that financing moving forward.

 

The Micro Loan Program provides quick cash to newer businesses through the SBA, focusing on financing good for up to $50,000 with a loan repayment timeline that stretches up to six years – again with really friendly interest rates.

 

The CDC/504 loan program is usually taken advantage of by companies that need to finance major fixed assets (like big equipment expenditures or the purchase of commercial real estate, for example). These loan packages offer upwards of $5.5 million in financing over a repayment timeline of between 10 and 20 years, though it is a little bit more restrictive and how you use the financing you have been green lit for.

 

Fees for these kinds of loans are pretty attractive as well, especially when you’re talking about the 7(a) style loans. You’ll be asked to pay a guarantee fee of 1.7% for any of the SBA loans you take for up to $150,000 and a flat 2.25% for any loans greater than that amount.

 

Your interest rate is going to sit at a maximum – yes, your reading that correctly, MAXIMUM – of 2.75% plus whatever the current prime rate is.

 

That’s certainly one of the biggest draws for these kinds of loan packages.

 

Closing Thoughts

 

At the end of the day, if you’re lucky enough to go through the application process for SBA loans and come out on the other side with approval for financing from this organization the odds are pretty good that you’re going to be in a prime position to get the financing you need to build and grow your business.

 

Not only that, but traditional lenders are going to be much more likely to do business with you on an ongoing basis after this simply because you’ve been given the “stamp of approval” from the SBA – one of the most restrictive lenders in America, but also one of the most helpful.

 

If you’re a small business owner in need of financing this is definitely an avenue you’re going to want to pursue.

 

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