What is a Small Business Administration (SBA) Loan?

Small businesses often need some financial assistance to get off the ground or expand. The US government recognized this and created a federal branch called the Small Business Administration (SBA) to support owners and startups.

What’s an SBA Loan?

An SBA loan is a financial vehicle that offers an umbrella of protection to lending institutions that secure these types of loans. In other words, the SBA department does not give money out, except in some natural disaster situations. Rather, the SBA guarantees parts of the loan, and this safeguard encourages lenders to fund smaller operations.

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What Terms Does an SBA Loan Offer?

SBA loan rates and terms are based on the program, and there are dozens of different loans at any given time. Each product has specific conditions built into it, but all of them are geared toward creating or sustaining a for-profit entity.

Business owners can use the 7(a) loan as working capital, which means you can use the money to buy office products, machinery, or expand workspace.

The 504 product has a maximum loan amount of over $5 million, and because of its size, it is for purchasing real property, land, and buildings.

The microloan program is almost the opposite of the 504. The microloans cap out at $50,000, and the money is earmarked as working capital.

The department has disaster money set aside for business owners to tap into when recovering from wildfires, hurricanes, and other catastrophic events. The funds can be used to pay for traditional expenses until the business gets operational again.

Veterans can access these programs also. According to Lantern by SoFi, this group can qualify for express loans, and SBA loan rates and terms are reduced or waived.

How Can I Get an SBA Loan?

Before applying, most lenders require a business to be up and running for 24 months, and the entity should be showing a profit. Good credit history is helpful, and it should be at least in the high 600s. An owner must substantiate all of this information with receipts, records, and returns.

If you are considering applying for an SBA-backed loan, consult with a lender to get a complete list of required paperwork, but some of the items you will need to provide are your business license and a future cash-flow statement.

Some traditional banks and credit unions are set up to do SBA loans, and there are specific companies that focus on helping people access these specialty products. The process takes time, so if you believe you will require additional funds, start the application process soon. In most situations, the approval process can take a few months.

There is a fast-track method for emergency and temporary loans. This type of funding can be dispersed in as little as three days. In all cases, once you are approved you will repay the lender, not the SBA.

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This government-backed program is a valuable tool most business owners should investigate. It offers opportunities and assistance on many levels. If you think you don’t immediately qualify, you can contact a lender to find out what steps you can take to get yourself and your operation in a good position to access this type of funding in the future.

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