What is an SBA (Small Business Administration) Loan?
In short, an SBA loan is a type of business financing that is guaranteed by the U.S. Small Business Administration or “SBA”.Better Financing Starts with More Options$1.2M offered by a Bank at 6.0%$2M offered by an Agency at 5.6%$1M offered by a Credit Union at 5.1%Click Here to Get Quotes
The SBA Loan
In short, an SBA loan is a type of business financing that is guaranteed by the U.S. Small Business Administration or “SBA”. The Small Business Association sets guidelines and works closely with lenders in order to secure loans for small business owners. The SBA securing the loan minimizes risk for the lender, which makes obtaining small business financing infinitely easier.
According to the Small Business Association, their mission is to help Americans start, build, and grow businesses. This has been the drive of the SBA since its inception in 1953 as an independent agency of the federal government. The Small Business Administration is tasked with aiding, counseling, assisting, and protecting the interests of American small business owners, preserving free competitive enterprise, and maintaining and strengthening the overall economy of our nation.
A common misconception about SBA loans is that the Small Business Administration acts as a lender. While the SBA does create the guidelines for all of the loan programs that bear the SBA name, they are not lenders or servicers of the loans. Instead, they work closely with approved lender partners who agreed to utilize the provided guidelines to originate flexible financing options for small business owners.
Why choose an SBA Loan?
Small Business Administration loans typically range anywhere from $500 to $5.5 million. Loan proceeds from SBA financing can be utilized for most business purposes, including operating capital and long-term fixed assets. Impressively, there are a plethora of loan products under the SBA umbrella to choose from, so no matter what the need is, there is more than likely an SBA guaranteed product that will benefit your business.
SBA loans are available to most small businesses with a few easy to remember requirements. For starters, any business seeking SBA financing must be a for-profit company, must be located in and conduct business in the United States, must have owner-invested equity, and must not be receiving funding from any other financial lender. As with any other business financing, business size, ability to repay, and the purpose of the business is also taken into consideration.
Types of Loans Guaranteed by the Small Business Administration
As we have mentioned earlier, the SBA guarantees many different types of loans to meet the unique needs of most small business owners. There are a few different options when seeking SBA financing, and choosing the right loan for your business is what is most important. While the standard SBA 7(a) loan is the most widely used of the bunch, that does not mean that it is a one size fits all solution for small business funding.
The different SBA loans and what they are used for are as follows:
SBA 7(a) Loan - The standard SBA loan, for up to $5 million in funding.
SBA 7(a) Small Loan - A smaller, more cost-effective loan than the original 7(a), with funding up to $350,000.
SBA Express Loan - SBA financing at an accelerated pace. Funding of up to $350,000 with a streamlined application process and a guaranteed response within 36 hours.
SBA Export Express Loan - Another streamlined loan program, for Export companies looking to secure up to $500,000. Guaranteed response within 24 hours.
SBA Export Working Capital Loan - Up to $5 million for working capital to be used by export companies
SBA International Trade Loan - Long-term financing for growing export companies or exporters competing with imports and foreign competition.
SBA 504 Loan - Up to $5 million STRICTLY for the purchase, construction, acquisition, rehabilitation, and/or modernization of fixed assets.
SBA financing is so much more than just a comprehensive suite of small business financing options, too. The SBA operates using a network of preferred lenders who are able to provide more flexible financing options for business owners. There is also the Veterans Advantage Program that provides reduced fees for the rapidly growing veteran-owned business population. Finally, The SBA has an umbrella program dubbed “CAPLines” which consists of different types of business lines of credit to help small business owners meet their short-term and cyclical working-capital needs.
What are the requirements for an SBA loan?
The requirements for an SBA loan vary depending on the type of loan you are applying for. For an SBA 7(a) loan, you must meet the eligibility requirements, have a good credit score (preferably above 680), have a history free from recent bankruptcies, foreclosures, or tax liens, have been in business for at least two years, have the ability to provide collateral for loan requests over $25,000, have the ability to make a down payment of 10% if your intended use of funds is to purchase a business, commercial real estate, or business-related equipment, have sufficient cash flow to meet your debt obligations, have sufficient working capital (once you subtract liabilities from assets), and have “good character” according to the SBA (partially decided based on your track record of managing your resources and day-to-day business affairs).
For an SBA 504 loan, the requirements for lenders are that they must meet minimum lending activity level requirements (actively lend to customers), have a board of directors with at least nine directors who vote, have full-time, professional management, have full-time, professional staff, be an SBA-approved private sector lender, and work with CDCs.
What are the benefits of an SBA loan?
The Small Business Administration (SBA) offers a variety of loan products that can benefit small businesses. These loans typically range from $500 to $5.5 million and can be used for most business purposes, including operating capital and long-term fixed assets. Additionally, the SBA guarantees the loan, which makes banks more willing to offer these loan products to high-risk borrowers. With an SBA loan, small business owners can address their biggest concerns, such as cash flow problems, payroll, and commercial real estate expenses.
In order to qualify for an SBA loan, businesses must be for-profit, located in and conducting business in the United States, have owner-invested equity, and not be receiving funding from any other financial lender. Business size, ability to repay, and the purpose of the business are also taken into consideration.
What types of businesses are eligible for an SBA loan?
The Small Business Administration (SBA) 7(a) loan program is designed to help small businesses purchase, start, expand, or refinance their existing businesses. The SBA 7(a) loan program is available to businesses in a variety of industries, including retail, manufacturing, and service-based businesses. According to the SBA, eligible businesses must be for-profit, have a tangible net worth of less than $15 million, and have an average net income of less than $5 million after taxes for the past two years.
The SBA has a list of eligible and ineligible industries for SBA 7(a) loans. Eligible industries include retail, manufacturing, and service-based businesses. Examples of eligible businesses include restaurants, retail stores, professional services, and construction companies. Ineligible industries include gambling, lending, and investment businesses.
At SBA7a.loans, we can help you with the process of applying for an SBA 7(a) loan. We can provide you with a free SBA 7(a) loan quote and help you determine if your business is eligible for an SBA loan.
How long does it take to get approved for an SBA loan?
The length of time required for an SBA 504 loan to be approved can vary drastically, but averages between 60 and 90 days. With that being said, it may take up to six months in some situations. There is no hard and fast rule here, and each situation will be unique. Factors that go into determining the length of time to loan approval include:
- Your ability to gather all required information
- Your ability to satisfy all lender requirements for information and proof of income
- SBA approval (up to 7 days)
- Due diligence (2 to 3 weeks)
- Closing (up to 14 days)
For borrowers dealing with Certified Lenders, the SBA is able to expedite application approvals. A complete application is submitted and the SBA will confirm the lender’s decision by conducting a credit review only, instead of a complete review of the application. The process is much shorter than the standard 7(a) loan approval processing -- it only takes three business days.
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What documents are needed to apply for an SBA loan?
To apply for an SBA loan, you will need to provide the following documents:
- SBA Form 1919 (borrower information form)
- SBA Form 912 (statement of personal history)
- SBA Form 413 (personal financial statement)
- Business and affiliate financial statements, including a balance sheet, profit and loss, and income projection
In addition, you may need to provide the following documents:
- Agreement to purchase the business
- Letter of intent to buy the business
- Business tax returns for the past three years
- Any outstanding business debt
- Long-term business contracts
- Documentation of business assets
- Business lease agreement
- Incorporation documents and/or business license
- Business plan
The SBA will usually order an independent business appraisal to give lenders an idea of what the true value of the business is.
The SBA allows applicants to get help (for example, from a lawyer or a translator) filling out the application paperwork, but your lender will be required to submit information about who gave you help to the SBA, so you’ll need to document who this person is as well.