Basics of SBA Loans

One thing you are likely to run into a lot when you are looking at financing options for your small business is SBA loans programs. The Small Business Administration is not a lender, so the fact that they have loan programs can be confusing to many, but these programs are designed to help banks minimize the risk in lending to the companies which employ over ninety percent of the US workforce. Before applying for one of these programs, it is a good idea to know what they are, how to qualify and what the process looks like.

What Are They?

The SBA works with banks and preferred lenders to help small businesses secure loans. These loans are partially guaranteed by the Small Business Administration, up to eighty-five percent, in case the borrower defaults. This lowers the risks for the lenders and helps underwriters approve the loan. These programs will usually have limits on how the money can be used, for example, with a 501(a) loan, you must purchase or renovate owner-occupied real estate for your business.

How Do You Qualify?

To qualify for SBA loans, you must own a for-profit business based in the US, meet the business size requirements of the SBA, have invested equity in your business. You will also need to have exhausted other financing options with commercial lenders and meet some qualifications from a preferred provider with a history of working with the SBA. Usually, you will talk to your bank about financing options and their loan officer will help you determine which SBA programs you qualify for. This can help you streamline the process a little.

What Is the Process?

The process may differ depending on the lender and the SBA program you are qualifying for, but you will need to submit many of the same documents including a business plan, financial records for several years, personal and business tax returns and a business valuation. You will first find a lender either by going through your current institution or by looking for approved lenders on the SBA website. It is a good idea to shop around for lenders and to choose one with a strong history of working with the SBA to get the best terms. Once you submit your documentation to both your chosen lender and the Small Business Administration, you will wait for the loan to be approved or denied.

SBA loans can help small businesses make growth purchases, survive national disasters and much more. There are several loan programs to choose from with the Small Business Administration and by working with your lender’s loan officer to find the best fit for your needs.


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