What To Know About SBA Loans

While there are many business loans out there, not all of them cater to the needs of small businesses. In fact, smaller enterprises can find it difficult to qualify for some loans. What can you do if you’re a startup looking for working capital? The answer is SBA loans.

This type of financing is specifically designed for small companies looking to grow. If this sounds like it could help you, here’s everything you should know about the application process and benefits.

Who Can Apply?

Not just anyone can get approved for a small business loan. In fact, applicants are expected to have good credit and make a reasonable profit.

Additionally, these loans are only open to for-profit businesses. Charities and nonprofits must pursue other financing avenues. Applicants must also be based in the U.S.

And, of course, to be approved, your company must be classified as a small business. That means having less than 500 employees.

Who Offers SBA Loans?

While the name is taken from the Small Business Administration, this federal government agency doesn’t provide any of the funds. Instead, the SBA facilitates loans by guaranteeing them with lenders. That means the SBA pays the lender if you default.

To offer SBA financing, lenders have to be accredited. This not only ensures that lenders get their guarantee, but also protects consumers from fraudsters claiming to offer these loans. Before you submit any applications, make sure you verify the lender’s accreditation.

What Types of Loans Are Available?

The SBA offers many different programs, each with its own terms and benefits. For example, microloans are usually provided by community-based nonprofits for machinery, supplies, equipment, inventory and working capital. They’re typically $50,000 or less.

The most well-known programs, however, are the 504 and 7a. 504 loan programs are used to fund the purchase of facilities, land, machinery and other fixed, long term assets. They can be as large as $5.5 million and are usually offered by certified development companies and traditional banks.

7a loans can be used for equipment, expansion and working capital. Provided by specialized lenders, credit unions and banks, they can be issued for as much as $5 million.

So why choose a SBA loan over other types of financing? For one, the interest rates are lower than other options, such as credit cards. Additionally, they’re designed for long-term use, with terms typically lasting 10 years. If you’re a small business, SBA loans may be the perfect solution.

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