A Small Business Owner’s Guide for Getting an SBA loan

SBA loans are attractive for small-business owners because they have long terms and low rates. Find out which types of SBA loans you can apply for and what they are.

SBA loans are typically lower in interest and have longer terms than conventional loans.

SBA loans are easier to get for small businesses than conventional loans. However, you will need to submit extensive documentation about your finances to be approved.

The type of SBA loan requested will determine how much money you can borrow. An SBA microloan can only be used for $50,000; a 7(a loan is limited to $5 million.

This article is intended for small business owners who are interested in learning more about SBA loans, and how to apply.

What is the SBA?

The Small Business Administration (SBA), a federal agency, offers capital, counseling, and contracting services to small businesses. The SBA’s primary function is to assist small businesses in America get the financing they need to grow and operate. The SBA loan program is the main way that the SBA accomplishes this. It provides guaranteed financing for small businesses through lenders who are part of the SBA loan program.

What is an SBA loan?

The SBA doesn’t lend money to small businesses directly. It instead sets guidelines for loans made by its partners (banks, credit unions and community development organizations) Lenders are not at risk if the SBA guarantees that some of these loans will be repaid.

An SBA loan allows you to borrow a certain amount and guarantees lower interest rates than banks. Some borrowers may not have received a loan from the lender initially. The lender might decide that the risk is acceptable if the government supports a large portion of the loan.

What is the process of SBA loans?

SBA loans and credit lines are very similar to traditional business loans from banks. Once approved by business owners, the borrower receives funding. Then, he or she pays it back with interest over time.

What are the requirements to qualify for an SBA loan

You will need to provide detailed financial documentation regarding your business to the bank and SBA in order to be eligible for an SBA loan. This helps the SBA determine your eligibility and assess if the loan is right for you.

SBA Loans: What are the costs?

SBA loans have costs, just like other business loans. There are several fees that SBA loan borrowers pay, such as application fees, appraisal fees (if the loan is collateralized with real estate or other assets) and a credit check fee.

SBA loans come with a guarantee fee in addition to the usual fees. In exchange for the SBA guaranteeing part of their loan, this is the fee that borrowers must pay. This fee is only applicable to the SBA-guaranteed loan portion.

Benefits of an SBA Loan

An SBA-backed loan can provide many benefits, including lower interest rates and extended loan terms. Your business’s situation will vary. It may be difficult to choose between an SBA loan or a conventional loan.

Kale Gaston, president and CEO of Lendstream Small Business Finance said that SBA loans do a great job helping lenders say “yes” to borrowers. He also pointed out that SBA programs offer small business owners better access to capital, credit enhancement, and more flexibility. Lenders can also provide funding if the down payment is too low or the cash flow of the business is not sufficient to support traditional lending options.

These are the greatest benefits of SBA loans.

Lower interest rates

For example, the maximum interest rate for a 7(a), SBA loan exceeding $50,000 is WSJ Prime plus 2.75%. This cap will allow you to get a lower rate than the standard banking interest rates. This rate is intended to attract lenders but also allows the borrower to offer a fair rate.

The WSJ Prime rate is 3.25% as of January 2022. You could qualify for the best business loan available at 6% interest if you add the 2.75% requirement. This is a significant discount from what banks offer to small businesses, especially those who are financially struggling.

Flexible payment options

Because of the SBA loan program, you might be able to repay your loan with flexibility. This is especially true when disaster-relief loans are concerned. SBA loans can be deferred by companies, refinanced or rescheduled to pay interest-only until normal economic conditions return. This is dependent on your company’s specific situation. Minimum down payment is 10%