5 Tips When Considering an SBA Loan

From past many years, the US SBA or Small Business Administration rose to the challenge of recreating the American economic structure, helping facilitate around $19.2 billion in loans to small business during the last fiscal year alone. If your trade is in need of cash to start or expand, here are a few tips when considering an SBA loan.

The SBA Does Not Make the Loans

Ironically, one of the keys to the success of the SBA’s trade model is that the SBA does not offer the loans themselves. Instead, they make the rules and commercial lenders such as banks, non-bank lenders, credit unions provide the loan amount to the small business borrowers. Why is that very important? Unlike government offices, banks have stockholders to whom they have to answer, so they create systems and procedures to get the loans out the gate as fast as possible.

Features of an SBA Loan

The most popular type of SBA loans falls under the SBA 7a loan program, including a myriad of term loans and lines of credit. Over the past many years, the SBA has made a concerted hard work to add flexibility to their programs and products so that lenders and debtors not only have more options, but also a simpler delivery process. A standard SBA loan should have 7 years working capital, 7 years inventory, 7 to 10 years equipment, up to 10 years business acquisition and 7 to 25 years debt refinance time. The rate of interests are usually variable and tied to the prime rate. Fees depend on the size of the loans but average fees between 2 to 2.7% of the debt amount and not including things such as appraisal, title reports, credit report and other necessary loan costs. Currently, the SBA waives their fee for loans of that size, which can save you lots of money.

Benefits of an SBA

For the debtor, SBA loans typically have longer payback time. Down payments are often lower than what bank would need for a standard commercial loan. Collateral needs are often less stringent. Moreover, SBA has different loan program according to the debtor’s need such as SBA 7a, SBA 504 and much more. On the other side, the SBA guaranty can help the bank get flexible with things they might otherwise not be willing to do, like financing a start-up business, overcoming one or two credit factors, or support a business financially they might not normally consider.

How to Apply for an SBA Loan

At first, try your bank. There has an option to get approved by the bank based on your communication with them, perhaps even without utilizing the SBA. If the process does not work, contact your local SBA office and ask for an SBA preferred lending company in your area. If your business is new, bring your business plan to your very first meeting with the lender and also be prepared to discuss it in great detail. If you already have a business, have your financing statements ready, along with your plan for the coming year. Your trade is new or established, the lender will ask tax returns, personal financing statements as well as other information to complete the application.

Great Resource for America’s Small Trade

In the wake of the great recession and with trade looking to grow again, the SBA financing is the best alternative when you need lower payments, or if something about request does not make it a good fit for a commercial loan. There is a bit more paperwork and the timetable mat take long days with an SBA loan, but nothing to worry, it is your friendly local banker or non-banking lender doing the work.