Are you thinking about finally making your dream of owning a business a reality? Do you already own a small business that has been incredibly successful and you want to make accommodations so that it can grow even more?
If you answered ‘yes’ to either of these questions, then you are probably well aware that you need capital to realize your goal. However, securing that capital can be a real challenge.
If you are trying to find the financial resources you need for your business venture, an SBA loan could be the solution you are looking for.
What is an SBA loan, how does it work, and what kind of benefits does it offer?
Keep on reading to find out more about this type of business loan.
SBA Loan Defined
SBA stands for Small Business Administration, a government agency that provides support for small business operators and entrepreneurs.
The SBA offers several financial assistance options, including small business loans, which are guaranteed by the SBA and issued by lenders that participate in the program – usually banks.
The Small Business Association has the ability to guarantee as much as 85 percent of the loans that they issue in amounts up to $150,000, and 75 percent of the loans that they issue in amounts that exceed $150,000.
The guarantee offered by the SBA safeguards lenders who issue these loans by assuring that they will pay back a portion of the loan in the event that the borrower defaults.
Types of SBA Loans
The SBA offers several loan options. One of the most common is their 7(a) Loan Program. Through this program, entrepreneurs and small business owners can borrow up to $5 million.
The money provided by the 7(a) Loan Program can be used in various ways, including the purchase of business-related equipment, working capital, commercial property leases, and refinancing any debts that are already existing.
Another popular SBA loan is the CDC/504 Loan Program. This option offers to finance for large fixed assets, including real estate, large equipment purchases, or improving existing property.
The Process of Applying for an SBA Loan
There are different requirements for each loan program through the SBA. To find out which loan will best meet your needs, what you will need to do in order to qualify, and how to start the application process, speak to a lender that works with the SBA.
With that said, there are some things that you can do in order to prepare yourself for applying for an SBA loan, such as:
- Collecting pertinent financial statements – personal income tax returns, personal financial statements, business tax returns
- Ensuring your business plan is updated and accurate
- Determining how much money you will need to borrow
- What you plan on borrowing the money for
- Your loan application history
- The license or certificate for your business
What are Repayments Like?
One of the biggest benefits of an SBA loan is that borrowers have more time to pay them back than they would with other types of loans. Your loan repayments are determined by the type of loan you are taking out and how much money you will be receiving, as well as how you plan on using the money provided by the loan.
As an example, loan repayments for the following uses are as follows:
- Purchasing real estate – as much as 25 years
- Purchasing new equipment – 10 years
- Daily operations or working capital – 7 years
The Bottom Line
An SBA loan can be an excellent option for those who are thinking about starting a business or those who already own one and need to secure more capital.