SBA Loan An Overview of SBA Loans
Author: Grant Olsen
Date posted: 11.07.23

Considered the gold standard of business financing, SBA Loans typically have terms extending out to 10 years and loan amounts up to $5 million. And because the SBA is guaranteeing a portion of the loan, interest rates are often the lowest of any business loan. This is also a bank product with a bank process and is generally the slowest to close.

An Overview of SBA Loans

If you’re looking for a borrower-friendly loan with great rates, you should seriously consider an SBA Loan for your financing needs. An Overview of SBA Loans: The SBA is a government agency dedicated to helping small business owners receive access to crucial funding and loans guaranteed by the SBA are considered the gold standard in small business lending

 

The SBA 7(a) loan is the most popular of all the options provided. They have maximum amounts of $5,000,000 and have rates equal to prime+. SBA 7(a) loans facilitate monthly payments, and their terms extend up to 10 years. Importantly, these loans do not impose prepayment penalties, empowering you to save money on interest by making extra payments whenever feasible.

 

While these loans offer numerous benefits, it’s crucial to be aware of their limitations. The main concern is the timeline. Although you can obtain pre-approval within 48 hours after submitting your application, final approval and funding may take as long as 3-4 months.

 

Considering this lengthy application process, you must carefully assess your needs before applying. If you have time to wait for the funds, an SBA 7(a) loan can present an incredible funding opportunity. However, if you’re facing pressures that demand faster action, you should explore a more expedited form of financing.

What Is an SBA 7(a) Loan?

An SBA loan is structured differently than just about any other type of financing. First of all, the SBA doesn’t provide the funding for the loan. They instead serve as a mediator between the borrower and a network of third-party lenders.

 

The SBA advocates on the borrower’s behalf by guaranteeing a portion of the loan. So if you were to default on the loan, the SBA will pay off that portion. As a result, the guarantee reduces the risk to lenders, providing them with a stronger incentive to approve your application. Consequently, SBA loans often come with favorable interest rates and repayment terms.

 

If you can afford to wait for the longer-than-average processing time of an SBA loan, it can be an amazing option for your small business.

 

 

Using an SBA 7(a) Loan

Some small business loans are engineered for specific purposes. For example, equipment financing is for equipment-related needs and commercial mortgage financing helps you with property related expenses.

 

An SBA 7(a) loan, however, can be used for a wide range of business expenses. Possible uses include:

 

  • Refinancing existing debt
  • Fixing existing equipment
  • Purchasing new equipment
  • Hiring additional employees
  • Adding inventory
  • Making upgrades to technology

 

If you ever have questions regarding uses, it’s advisable to check with your lender.

An Overview of SBA Loans

Applying for an SBA 7(a) Loan

Similar to other bank loan products, the application process for an SBA loan requires full documentation, and lenders usually request collateral as well. Expect to submit documents, such as 2 years of business and personal tax returns, up-to-date financials, a detailed description of fund usage, personal financial statements, and a debt schedule, among others.

 

Typical qualifications are:

 

  • Credit score of 680 or higher (above 700 is preferred)
  • Must operate as a for-profit business
  • Must be owned by an American citizen or permanent resident
  • Sufficient real estate collateral
  • Adequate net income to meet the new SBA loan debt obligation
  • Haven’t defaulted on other government loans
  • Meets the SBA’s size requirements

 

Additionally, it is essential to have a robust business plan to include with your submission. By demonstrating clear strategies and being well-organized, you will significantly increase your chances of approval.

About The Author | Grant Olsen

Grant is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant has a B.A. in English from Brigham Young University.

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