As a small business owner, you have to make a lot of decisions about your business every day. While it can be a daunting task, it is imperative that you look at all your options before you make any big decisions. This is especially important if you are researching your options for a loan to grow your business; one option you definitely need to consider is a SBA loan.
What is a SBA Loan?
SBA loans are issued by a financial institution just like any other loan, but are guaranteed by the U.S. Small Business Administration. This makes it is easier for the financial institution to take on the risk of lending to you as a small business owner. Essentially, the government will pay back your lender should you default on the loan. Because your lender has this extra guarantee of being paid back, they are able to provide additional financing options to more business owners, which means flexible terms and rates for you. There are several types of SBA loans available based on your need and situation, your lender will be able to help you decide which type is a best fit for you and your business. Many business that are large today, started out with a small business loan, including Google, Nike, and FedEx!
Where can I get a SBA Loan?
Contrary to popular belief, the Small Business Administration does not directly offer SBA loans, as stated above, they only guarantee the loans. There are many financial institutions ranging from traditional credit unions and banks, to online lenders that offer SBA financing options. When you chose a lender for an SBA loan, take a look at the whether or not they are a preferred (PLP) or a certified (CLP) lender.
- Preferred SBA Lenders are “top-tier” SBA lenders and are able to approve and fund SBA loans without approval from the SBA
- Certified SBA Lenders have a proved track record of SBA lending, but still require the approval from the SBA before funding the loan
Who qualifies for a SBA Loan?
While each financial institution will have its own requirements for lending, generally to qualify for an SBA loan you would need to meet the following minimum criteria:
- Be a for-profit business
- Be small (according to the SBA)
- Be based in the United States
- Be able to demonstrate you have reasonable invested equity
- Be able to present a solid business use case for the loan
- Be current on any existing debts to the U.S. government
When can I use a SBA Loan?
SBA loans are available to small business owners for a variety of purposes including:
- Long-term working capital to cover operational expenses
- Short-term working capital such as seasonal expenses
- Revolving funds such as costs for inventory and receivables
- Purchase equipment, furniture, fixtures, supplies or materials
- Purchase, build, or renovate commercial real estate, including land and buildings
- Support the expansion of an existing business
- Refinance existing business debt, under certain conditions
In some cases, you can even finance the purchase of a franchise or recieved start-up funding. It will be up to your lender to help you determine which type of SBA financing program you should apply for based on what your situation for needing the loan is.
Looking for a business partner who can help you get financing?
Partner with us!
In Summary
A SBA loan is a great option to consider if you are a small business looking to grow, whether it is to cover operational expenses or to physically expand your business. A good lender will be either a Preferred or Certified lender, and will be able to help you determine which SBA financing option your business is eligible for.
