If you’ve struggled to get financing in the past or are considering venturing into the small business lending world for the first time, you may be wondering what the SBA’s loan program is.
By introducing the SBA’s loan programs – who they are, who can benefit, how to apply – here is a short introduction
What is an SBA loan?
First, let’s dispel a myth – the SBA does not lend directly to entrepreneurs to start or grow their businesses. Instead, it provides guarantees for banks and lenders to make loans to small business owners. The guarantee protects the lender by promising to repay part of the loan if the business owner defaults on the loan. So when a business applies for an SBA loan, it is actually applying for a business loan through a bank or an authorized SBA lender, which is structured according to SBA requirements and the SBA guarantee structure.
Essentially, SBA loans mitigate the risk of lending money to business owners and entrepreneurs who would not qualify for traditional loans – thereby providing access to thousands of entrepreneurs, start-ups, growing businesses, minorities and veterans loan opportunities. Learn more about the SBA’s role in this process.
What types of loans are available?
There are several types of loans that businesses can take advantage of, each developed to meet your business needs. For example, a 7(a) loan program can be used for a variety of purposes, including working capital, revolving funds, equipment purchases, refinancing of existing debt, and more. This short video offers a low-key look at 7(a) and is worth a watch.
The SBA also provides export assistance loans (up 3.7% this year) and financing of major fixed assets such as seasonal working capital (CAPLine) or real estate equipment (CDC/504 loans).
Additionally, the SBA can assist business owners who need financing to aid in disaster recovery. Disaster loans – available to homeowners, renters, businesses of all sizes and private nonprofits – are available to repair or replace items damaged or destroyed during a declared disaster, including real estate, personal property, machinery and equipment, and inventory and business assets.
If you’re looking for smaller loan amounts (less than $50,000), consider the Microloan program or the SBA Express program. A subset of the 7(a) loan program, SBA Express is designed for businesses with financing needs up to $350,000. Proceeds can be used to finance a variety of business activities, and no collateral is required for loans up to $25,000.
It’s also worth mentioning that the fees on all SBA loans are currently very veteran-friendly and are currently zero for loans under $150,000.
Which loan is right for me?
Still not sure if there is a loan for your special needs? Check out this loan guide from BusinessUSA.gov. It will get you the right financing in just a few steps.
Is my business eligible for a loan?
While each loan has its own specific eligibility criteria (here’s a deal on 7(a) eligibility), talk to your bank or lender about your needs and business profile. Another resource is your local SBA district office.
Note that in addition to meeting SBA requirements, lenders also consider credit factors such as your business cash flow, equity investments, collateral, and more.