Last editedMay 20212 min read
If you run a small business and need extra finances, then a small business administration (SBA) loan might be just the thing. Learn a little more about small business administration loans, right here.
What are SBA loans?
Small business administration loans are loans valued up to $5.5 million given to small businesses. SBA loans are partially guaranteed by the U.S Small Business Administration, this means businesses who take out SBA loans enjoy flexible repayment terms and benefit low interest. It also makes them a little more complicated to apply for compared to other small business loans. Read on to find out how to get a business loan from the SBA, and precisely what you’ll need to make a successful application.
Types of SBA loans
There are several types of small business administration loans, and you should consider the best one for your needs, depending on how you plan to spend your secured funding:
7(a) loan: For borrowing up to $5 million, money is lent by banks, specialized lenders, and credit unions, with funds to be used for working capital, expansion, and equipment.
504 loan: For borrowing up to $5.5 million, money is lent by banks and Certified Development Companies. The funds must be used for long-term, fixed assets.
Microloans: For borrowing up to $50,000 from community-based nonprofits, funds must be used for working capital, inventory, supplies, and equipment.
The 7(a) loan is the flagship SBA loan and has other variants, including an express version which secures funding more rapidly, but in smaller amounts. There’s also a disaster loan, granted only when a company is hit by declared disasters. This money can be used to recover from disasters and loans are limited to $2 million.
Depending on how you spend your funds, there are a couple of key benefits. As well as benefiting from the SBA’s low interest loans, you may also enjoy longer periods before the loan reaches maturity. For example, at present, real estate loans have a maturity of 25 years.
How to get a business loan from the SBA
There are several non-negotiables when it comes to SBA loans. Generally, they are a very good option for small business loans, but some business owners may find the SBA loan requirements too restrictive, or the processing times too lengthy. Here’s what you’ll need:
A personal guarantee of business collateral from everyone with more than 20% ownership of the company
A statement of personal history
A personal finance statement
Personal income tax returns for the past three years
If applicable, your lease agreement
Business tax returns
Your cash flow projection for the next year
Information on any businesses you’re affiliated with if you have controlling interest in them
If you plan to borrow money to expand your business, you may also be asked for:
Three years of business tax returns
Your business debt schedule
Your profit and loss and balance sheet
You may also need to provide the following to formally accept a loan offer:
Proof of life insurance
Documents surrounding construction (if you intend to fund works with the money)
SBA loan requirements
Not all businesses qualify for SBA loans, generally, you’ll need the following to be eligible:
Have been in business for at least two years
Strong annual revenue
Good credit report scores both as an individual and a business
The aforementioned collateral, i.e., a property
Proof that you cannot gain the funds though your own assets
Several industries are not eligible, including charity, real estate, rare coins or stamps, or gambling
No history of defaulting on a government loan
Other factors like having a criminal record may also count against you. While they don’t disqualify you outright, they can lengthen your processing time significantly.
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