What is an SBA loan, and why should you consider getting one
The U.S. Small Business Administration (SBA) loans offer entrepreneurs long-term, low-interest rates and an affordable form of funding. As a result, these small-business loans are highly sought-after. However, the application process is known to be very rigorous.
Creditors and SBA agencies work together to create lending programs for small businesses. These programs are used by borrowers to find financiers for their small companies. Because the SBA guarantees a proportion of the loan amount, it reduces the lender’s risk, which is why lenders value SBA lending programs. Financial institutions are able to provide more flexible terms of payment and cheaper interest rates than the majority of small businesses would be able to achieve without that assurance.
Below are a few benefits of SBA loans for which you should consider applying for one.
Advantages of an SBA loan
These are the four most important reasons you should consider applying for an SBA loan:
- Secured loan – SBA loans are backed by a guarantee from the SBA, protecting the lender from a loss if the borrower fails to pay. This security comes with a consequence, however, as the lender will have the right to seize assets in the event of nonpayment.
- Specifically created for small businesses – Small businesses are the focus of SBA loans and SBA Express loans. Guidelines were developed by the SBA and lenders with the intention of promoting small business growth and expansion. SBA loans, in contrast to conventional bank loans, are targeted specifically at SMBs.
- Numerous uses for the money – Various expenses may be covered by SBA loans, including SBA expedited loans. You may use these funds for most business goals, including startup, growth, equipment acquisitions, cash flow, asset acquisition, or property investments, according to the SBA.
- Lenders are more comfortable – Due to the federal government’s guarantee of SBA loans, lenders have become more inclined to provide financing to small businesses through these loans. Furthermore, lenders have relaxed their requirements for businesses applying for SBA loans. This makes it easier for small businesses to access the funding they need.
Next, let’s take a look at the criteria to qualify for SBA loans.
What are the eligibility requirements for an SBA loan?
While they come with several benefits, especially for small business owners, SBA loans also have stringent requirements. Typically, you’ll qualify if you meet the following criteria:
- Two or more years of for-profit business operation as a registered entity.
- For all company owners, a FICO rating of 690 or greater is required.
- To secure a significant portion of the desired loan, use personal or corporate collateral.
- To have looked elsewhere for financing but been unsuccessful.
If you qualify for an SBA loan based on the above criteria, you must gather all the required documents before you proceed to apply for it. Let’s understand what documents you will typically require.
What documents do you need to apply for an SBA loan?
You must submit documentation and information proving your identification, the legitimacy of your business, your background in both your personal and professional life, and your creditworthiness in order to process your application.
This data consists of the following:
- Your name and contact information
- For the business, a certificate or license
- Proof of corporate ownership
- Financial statements for businesses, including financial initiatives
- Income and expense reports
- Tax returns from two years of businesses
- Tax returns for two years
- All previous loan requests and decisions in the past
For more information about authorized lenders who work with SBA loans, you can also inquire in person at your neighborhood district SBA office.
Once you have all your documentation in place, you can proceed with your SBA loan application.
How to apply for an SBA loan
You can apply for an SBA loan in four steps:
- Find a lender – SBA loans can only be provided by lenders who have partnerships with the SBA. If your company already works with a reliable credit union or bank, you might inquire about their availability of SBA loans. Alternatively, you can use the Lender Match Tool provided by SBA to find one.
- Choose the right loan type – When individuals refer to “SBA loans,” they often mean 7(a) loans, the SBA’s main loan program. The majority of corporate needs, including working capital, may be met by them. In addition, 504 loans offer small firms long-term finance for the purchase of fixed assets utilized for expansion or renovation. For minor financial needs, the SBA also provides microcredit of up to $50,000 to nonprofit childcare facilities and small enterprises.
- Assemble your documents – gather all the documents listed above and contact SBA to learn if you need anything else. Your lender will also be able to help you with this, as most lenders usually have a fixed set of documents they require, which may differ from what other lenders need.
- Submit your application – When everything is prepared, submit the application to your lender. As they complete your loan application, they could ask further questions or seek new documentation. Once they have reviewed your application and made a decision to move forward, they start the basic underwriting procedure.
If SBA decides to proceed with your application, you will receive a letter of intent within two weeks of approval, and your loan processing will begin once you sign it.
Tips for getting your loan approved quickly
SBA applications are known to have a drawn-out and difficult application process. Here are a few tips to help speed up the process:
- Choose an SBA Preferred lender – An SBA Preferred Lender has the power to independently approve loans. The application is sent by the lender to the SBA solely for an eligibility check. Usually, this process may be completed within 24 hours.
- Choose an express lender – SBA Express Lenders fill out the loan application using their own forms. The lender’s internal procedures are used to approve SBA loan guarantees. The SBA is presented with the whole loan application package for approval; nevertheless, response time is as quick as 36 hours. The Express Program offers company owners a quick and simple option to apply for financing of up to $250,000.00.
An SBA loan offers many benefits that businesses can take advantage of. This article helps you to apply for one the right way.