The Small Business Administration (SBA) is well known for helping small business owners acquire the financing they need to continue to grow. However, if you are interested in SBA loans for your own business, there are a few things to know before moving forward. Keep reading to learn about these loans and how to ensure you qualify for funding.
The SBA Doesn’t Give Loans
Some people believe that the SBA provides loans. This is not the case. Instead, the SBA makes rules, and commercial lenders provide the funds to borrowers.
Unlike government offices, banks have stockholders they answer to. These individuals develop procedures and systems to get loans out the door as quickly as possible.
SBA Loan Features
There are several loan options offered by the SBA. This includes lines of credit and term loans. Through the years, the SBA has made an effort to add flexibility to the products and programs offered so you have more options. The interest rates for SBA loans will typically be variable and tied directly to the Prime rate. The fees charged with the loan depend on the size, but the average is between two percent and 2. 7 percent. Also, this does not include things such as credit reports, title reports, appraisals, or other standard loan costs.
Benefits of Choosing an SBA Loan
For borrowers, SBA loans have much longer pay-back periods. The down payments are usually lower than what banks require for commercial loans, too. Usually, the collateral requirements are not as stringent, either.
With lenders, the SBA guarantee helps ensure the bank is more comfortable with loans they may not provide otherwise. This includes things like financing newer businesses, overcoming negative credit marks, or financing businesses they would not have considered in the past.
For lines of credit, even though they are administered and priced similar to standard commercial products, the guarantee from the SBA makes a huge difference in ensuring the loan is approved.
Applying for an SBA Loan
The best place to start is with your bank. Sometimes, they will provide financing based on your prior relationships without having to use the SBA. However, if this is unsuccessful, contact the SBA office in your local area.
Acquiring financing for your business is easier when you utilize services from the SBA. Keep this in mind if you need capital for your business and may not be able to acquire it through traditional lending options.