Need an SBA loan so you can grow your business affordably?
The U.S. Small Business Administration (SBA) is a federal agency that supports small business development and growth.
SBA loans are low-interest, government-backed loans, 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.
What is an SBA Loan?
An SBA loan is a loan issued by a traditional lender or alternative finance company that is backed by a guarantee from the U.S. Small Business Administration. There are four different types of loan guarantee programs through the SBA: 7(a) loans, CDC 504 loans, microloans and disaster loans. The 7(a) program, which is the option available through Gokapital, represents the bulk of the SBA-backed lending. Because of their federal guarantee, SBA loans are the lowest cost long-term funding available to small businesses. Before the involvement of alternative finance in the SBA market, getting an SBA-guaranteed loan was a lengthy, cumbersome process, which has now been simplified.
How can I get an SBA Loan?
Gokapital has streamlined the application process for all kinds of funding. SBA loans, however, have a higher threshold for approval than other types of funding. You must be in business for at least two years and be a U.S. citizen or legal permanent resident. Not every kind of business is eligible; check the SBA’s requirement list before you apply. You must have no bankruptcies in the last three years and no defaults on government-backed loans. Most importantly, your financial statements must show that your cash flow will support the loan’s repayment.
How can I use an SBA Loan?
You can use the proceeds of an SBA loan for short- or long-term working capital, including seasonal financing, construction financing and inventory. You can also use it to buy equipment or real estate, or to renovate existing real estate. You cannot use an SBA loan to refinance existing debt or to pay delinquent taxes.
Types of SBA Loans
There are several loans available through the Small Business Administration…
So how do you know which one is right for you?
Let’s start by taking a quick look at the most common SBA loans, and from there we can go into the specific costs associated with each loan type.
The SBA 7(a) Loan Program works for many general business needs. It typically provides loan guarantees up to $5 million. It can be paid back over a period as long as 25 years.
- Loan Amounts: Up to $5,000,000
- Rates: 5-8%
- Terms: 3-25 years
- Funding time: 30-60 days
The CDC/504 Loan Program is best for purchasing equipment or commercial real estate. It requires a low down payment and provides fixed interest rates with long repayment periods. Loans are usually used for expansion and business growth.
- Loan Amounts: Up to $10,000,000
- Rates: 5-7%
- Terms: 10-20 years
- Funding time: 30-60 days
The Microloan Program is perfect for small businesses that are looking for a loan of $50,000 or less. The average loan size in this program is $13,000. These loans can be used for things such as machinery, furniture, inventory, and supplies.
- Loan Amounts: Up to $50,000
- Rates: 6-13%
- Terms: Up to 6 years
The SBA Disaster Loan Program gives startups, established businesses, non-profit corporations, and homeowners low-interest disaster loans. These can be used to replace or repair any of the following that are damaged in a disaster: personal and business property, machinery and equipment, business assets and inventory.
- Longest terms and lowest rates available
- Monthly repayment structure
- Loans up to $350,000
- Low interest rate
- 10-year term
- Must be in business 2 years
- Collateral may be required above $25,000
- SBA guarantee fees on larger loans
- No recent bankruptcies or liens
Why Choose an SBA Loan over Other Loans?
We’ve talked about the advantages and disadvantages of SBA loans. We’ve looked at fees, interest rates, and repayment terms.
But why should you choose an SBA loan?
Backed by the US government, SBA loans offer flexible down payment options, low-interest rates, and longer repayment terms for small businesses compared to other financing options.
How to Apply for an SBA Loan
In order to expedite the process, you should have certain documents ready before applying for a loan.
Here’s just some of what you’ll need to apply for a small business administration loan:
- Driver’s License
- Voided Business Check
- Business Plan
- Business Debt Schedule
- Bank Statements
- Balance Sheet
- Profit & Loss Statements
- Credit Score
- Business Tax Returns
- Personal Tax Returns