Running a small business can be challenging, especially when unexpected financial obstacles arise. However, there is a solution: SBA loans. These loans, offered by banks and online lenders with partial guarantees from the US Small Business Administration, provide the necessary funds to overcome financial constraints and propel your business forward.
Before embarking on your search for a loan, it is important to understand the different types of SBA loans available. This knowledge will help you make informed decisions regarding which loan best suits your business requirements.
When applying for an SBA loan, you can approach trusted lending institutions such as banks or credit unions. These lenders will submit your application to the SBA for a loan guarantee. The SBA typically requires a personal guarantee from individuals who own at least 20% of the business. This guarantee means that these individuals become personally liable for loan repayment in the event that the company cannot make payments. This guarantee, coupled with the SBA’s loan guarantee to the lender, reduces the risk for the lending institution, making them more likely to work with small businesses and provide financing opportunities that may not be accessible through conventional channels.
Once your SBA loan application is approved, the lender will disburse the loan proceeds, and you will begin repaying the lender directly on a monthly basis.
There are several types of SBA loans to consider. The most popular is the SBA 7(a) loan, which is suitable for businesses with basic financial needs such as acquisitions or working capital. The loan amount can go up to $5,000,000, with a repayment plan ranging from 5 to 25 years and interest rates from Prime +2.25% to Prime +4.75%.
Another option is the CDC/504 loan program, which is ideal for businesses looking to purchase land, buildings, or equipment. This loan offers up to $5.5 million, a repayment plan of 10 to 20 years, and an average interest rate of approximately 5%.
For businesses in need of a revolving line of credit, the SBA CAPLines program provides up to $5 million at similar interest rates to the SBA 7(a) loan program. This program offers four options to cater to different business needs, such as seasonal increases in accounts receivable, construction or renovation projects, and working capital.
SBA export loans are designed to assist small businesses in engaging in international transactions and exploring foreign markets. These loans provide financial assistance of up to $5 million at an interest rate of 11%.
For businesses with small capital needs, the microloan program offers loans up to $50,000 with a repayment plan of up to 6 to 7 years and an interest rate of 6.5% to 13%.
In the unfortunate event of a federally declared disaster, SBA disaster loans are available to cover repair expenses and operating costs for affected businesses. These loans have low-interest rates, and the loan amount depends on the economic injury and financial needs of the business.
Lastly, SBA community advantage loans support businesses operating in underserved markets. These loans provide financial support for various business needs and offer flexibility to address the unique requirements of businesses in marginalized communities.
To increase your chances of securing an SBA loan, it is crucial to provide thorough and accurate financial documentation to both the bank and the SBA. Lenders typically look for businesses with at least two years of operation, solid annual revenue, and a good credit score. Building and maintaining a good credit score is essential, as lenders also consider the Small Business Scoring Service (SBSS) score, which evaluates the overall financial health and risk of the business.
When looking for a lender, you can choose between SBA standard lenders, who undergo a lengthier approval process, and SBA preferred lenders, who have a shorter approval process. Asking potential lenders about their experience with SBA loans and their track record can help you make an informed decision.
In conclusion, SBA loans can be a valuable resource for small businesses facing financial challenges. Understanding the different types of SBA loans available and following the necessary steps to secure a loan will enable you to make informed decisions and propel your business forward.
