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Applying for small business administration loans

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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

  • Business license

  • Personal income tax returns for the past three years

  • A resume

  • Personal identification

  • Business plan

  • 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

  • Business license

  • Business 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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