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What is a Small Business Administration (SBA) Loan?
SBA Loans are a flexible, competitively priced business financing option that the U.S Small Business Administration guarantees.
Small Business Owners and entrepreneurs of all industries often need to seek financial assistance at some point or another. One of the best ways to secure funding is with an SBA loan.
What is a Small Business Administration (SBA) Loan?
An SBA loan is a type of business financing that is guaranteed by the U.S. Small Business Administration or “SBA”. The SBA sets guidelines and works closely with lenders in order to secure loans for small business owners. With the SBA minimizing risk for the lender, obtaining small business financing is made infinitely easier.
It is in the very mission statement of the Small Business Administration to help Americans start, build, and grow businesses. This has been true of the SBA since its inception in 1953 as an independent agency of the federal government. The Small Business Administration is tasked with aiding, counseling, assisting, and protecting the interests of small business concerns, preserving free competitive enterprise, and maintaining and strengthening the overall economy of our nation.
A common misconception about SBA loans is that the Small Business Administration acts as a lender. While they do create the guidelines for all of the loan programs that bear the SBA name, they are not lenders or servicers of any loans. Instead, they work closely with approved lender partners who are able to utilize the provided guidelines to originate flexible financing options for small businesses.
About SBA Loans
Small Business Administration loans can range anywhere from $500 to $5.5 million. Loan proceeds can be utilized for most business purposes, including operating capital and long-term fixed assets. Impressively, there are multiple loan products under the SBA umbrella to choose from, so no matter what the need is, there is more than likely an SBA guaranteed product that will benefit your business.
SBA loans are available to most small businesses with a few easy to remember requirements. Any business seeking SBA financing must be a for-profit company, must be located in and conduct business in the United States, must have owner-invested equity, and must not get funds from any other financial lender. As with any other business financing, business size, ability to repay, and the purpose of the business is also taken into consideration.
Types of Small Business Administration Loans
The SBA guarantees many different types of loans, to meet the unique needs of most small business owners. There are a few different options when shopping around for an SBA loan, and choosing the right loan for your business is what is most important. While the standard SBA 7(a) loan is the most widely used of the bunch, that does not mean that it is a one size fits all solution for small business funding.
The different SBA loans and what they are used for are:
SBA 7(a) Loan - This is the standard SBA loan product, for up to $5 million in funding.
SBA 7(a) Small Loan - A smaller, more cost-effective loan than the original 7(a), with funding up to $350,000.
SBA Express Loan - SBA financing at an accelerated pace. Funding up to $350,000 with a much faster turnaround time and a guaranteed response within 36 hours.
SBA Export Express Loan - Another streamlined loan process, for Export companies looking to secure up to $500,000. Guaranteed response within 24 hours.
SBA Export Working Capital Loan - Up to $5 million for working capital to be used by export companies
SBA International Trade Loan - Long-term financing for growing export companies or exporters battling imports and foreign competition.
SBA 504 Loan - Up to $5 million SOLELY for the purchase, construction, acquisition, rehabilitation, and/or modernization of fixed assets.
What are the benefits of an SBA loan?
The Small Business Administration (SBA) offers a variety of loan products that can benefit small businesses. These loans typically range from $500 to $5.5 million and can be used for most business purposes, including operating capital and long-term fixed assets. Additionally, SBA loans are available to most small businesses with a few easy to remember requirements. For starters, any business seeking SBA financing must be a for-profit company, must be located in and conduct business in the United States, must have owner-invested equity, and must not be receiving funding from any other financial lender. As with any other business financing, business size, ability to repay, and the purpose of the business is also taken into consideration.
The benefits of an SBA loan include:
- Low interest rates
- Long repayment terms
- No collateral required
- No prepayment penalty
- Flexible terms
- No minimum credit score requirement
The SBA also offers loan guarantees, which can help reduce the risk banks take when lending to small businesses. This can make it easier for small businesses to qualify for a loan.
What types of businesses are eligible for an SBA loan?
The Small Business Administration (SBA) 7(a) loan program is designed to help small businesses purchase, start, expand, or refinance their existing businesses. The SBA 7(a) loan program is available to businesses in a variety of industries, including retail, manufacturing, and service-based businesses. According to the SBA, eligible businesses must be for-profit, have a tangible net worth of less than $15 million, and have an average net income of less than $5 million after taxes for the past two years.
The SBA has a list of eligible and ineligible industries for SBA 7(a) loans. Eligible industries include retail, manufacturing, and service-based businesses. Examples of eligible businesses include restaurants, retail stores, professional services, and construction companies. Ineligible industries include gambling, speculation, and illegal activities.
At SBA7a.loans, we can help you with the process of applying for an SBA 7(a) loan. We can provide you with a free SBA 7(a) loan quote and help you determine if your business is eligible for an SBA loan.
What are the requirements for an SBA loan?
The requirements for an SBA loan vary depending on the type of loan you are applying for. For an SBA 7(a) loan, you must meet the eligibility requirements, have a good credit score (preferably above 680), have a history free from recent bankruptcies, foreclosures, or tax liens, have been in business for at least two years, have the ability to provide collateral for loan requests over $25,000, have the ability to make a down payment of 10% if your intended use of funds is to purchase a business, commercial real estate, or business-related equipment, have sufficient cash flow to meet your debt obligations, have sufficient working capital (once you subtract liabilities from assets), and have “good character” according to the SBA (partially decided based on your track record of managing your resources and day-to-day business affairs).
For an SBA 504 loan, the requirements for lenders are that they must meet minimum lending activity level requirements (actively lend to customers), have a board of directors with at least nine directors who vote, have full-time, professional management, have full-time, professional staff, be an SBA-approved private sector lender, and work with CDCs.
What are the different types of SBA loans?
The Small Business Administration (SBA) guarantees many different types of loans to meet the unique needs of most small business owners. The most widely used loan is the SBA 7(a) loan, but there are other options available. Some of the other types of SBA loans include:
- SBA 504 Loan Program
- SBA Microloan Program
- SBA Disaster Loan Program
- SBA Express Loan Program
- SBA Export Loan Program
- SBA CAP Lines Program
For more information on each of these loan programs, please visit the SBA Loan Comparison Chart.
How long does it take to get an SBA loan?
The length of time required for an SBA 504 loan to be approved can vary drastically, but averages between 60 and 90 days. With that being said, it may take up to six months in some situations. There is no hard and fast rule here, and each situation will be unique.
An SBA Express loan is very fast. Expect a determination on your application within three days, maximum. And after that, funds will typically be dispersed in as few as 20 days.
The SBA 7(a) loan, on the other hand, takes a bit longer. Approvals take up to two weeks, generally speaking, and fund dispersal can take up to a month and a half following an approval.
SBA financing is more than just awesome individual loan products, too. The SBA has preferred lenders in place to provide more flexible financing options for business owners. There is also the Veterans Advantage Program that provides reduced fees for the rapidly growing veteran-owned business population. Finally, The SBA has an umbrella program dubbed “CAPLines” which are basically different types of business lines of credit to help small business owners meet their short-term and cyclical working-capital needs.