What is an SBA Loan?

A Small Business Loan 7(a), is one of the most efficient ways to finance your growing business. Compared to other financing options, an SBA loan often will most likely offer the lowest available interest rates and most flexible terms. The interested rates that are offered are so low because an SBA loan is guaranteed by the federal agency.  Thus resulting in a substantially lower level of risk of lending to start-up businesses. The downside to an SBA is that they are usually difficult to qualify for and qualified lenders (usually banks or online lenders) are responsible for setting their own qualification requirements. These requirements can vary depending on the amount and type of the loan and what uses it is being applied to.

Do you need an SBA Loan?

The most common type of SBA loan, the 7(a) General Business Loan Guaranty Program, are typically used for meeting short and long-term financial goals within a small business. Often, this means hiring new employees, refinancing existing loans, making equipment, augmenting inventory, or real estate purchases. Depending on the lender, the interest rates and qualifications required may differ, however, a standard SBA can be guaranteed up to 85% if less than $150,000 and 75% if greater than $150,000 total amount. It is important to know the qualifications of the lender as well; some banks or online lenders have more experience or past success in making and funding SBA loans than others. Therefore, well-known, successful SBA-qualified lenders are advantageous to employ because of their experience and expertise in this sometimes tricky to perfect field.

Applying for an SBA Loan

Applying for an SBA loan, regardless of the lender, will require a cohesive loan package compiled from your personal and business financial information to apply for the loan. The lender will most likely need the following information to confirm that your business meets all of their criteria:

  • SBA’s Borrower Information Form
  • Business Leases
  • Statement of Personal History
  • Personal Financial Statement
  • Personal Income Tax Returns (past three years)
  • Business Tax Returns (past three years)
  • Loan Application History
  • Business Certificate or License

Will you need collateral for an SBA Loan?

When considering an SBA loan, be aware that in some cases, a personal guarantee from business owners may be required to obtain the loan. Personal assets that can be listed as collateral for the loan can often be any of the following:

  • Savings accounts, investments, life insurance policies, accounts receivable
  • Real estate, land, buildings
  • Machinery or equipment
  • Personal endorsement

There are several different factors to consider when looking for the right kind of SBA loan to meet your needs. As with all financial decisions, it is important to research all of your available options and consider the ones your business qualifies for. If you are not sure what kind of SBA loan to pursue, feel free to schedule an advising appointment with one of our specialists to help you make the best decision for your small business.