SBA Loans and How to Apply for Them

Small businesses have found it necessary to take out a loan for various reasons. This includes cash-flow, startup capital, expansion, or debt consolidation. With the effects of the COVID-19 pandemic, many businesses are struggling to meet daily expenses and have been forced to shut their doors for an extended period or indefinitely. This has also presented another reason for them to take out a loan. One available avenue is a loan via the Small Business Administration, commonly referred to as SBA Loans. The Small Business Administration is a United States government agency that provides support to entrepreneurs and small businesses. 

What is an SBA loan?

SBA loans are supported by the government and are available to small businesses from private-sector lenders. These are secured loans which means that a company must pledge personal assets as collateral. Important to note is that the SBA doesn't lend the money. Instead, they guarantee a business loan from a lender, such as a bank. This gives additional assurance and encourages banks to finance businesses they otherwise might not approve for a loan. There are different SBA loan programs:

1. The 7(a) Loan Program is the SBA's main program for assisting small businesses. The terms and conditions vary by loan, and maximum loan amounts range from $350,000 to $5 million. 

2. The Microloan Program provides the smallest loan amounts available from the SBA. The loan amounts range from $10,000 to $50,000. Microloans are perfect for small startups, borrowers with limited security, or companies that require a small financial stimulus. Microloans are usually available to businesses that, under normal circumstances, wouldn't qualify for a loan. 

3. The CDC/504 Loan Program offers loans to small businesses with long-term fixed-rate financing for expansion or modernization. These are typically larger loans, generally capped at $5 million. Depending on the purpose of the loan, the terms are 10, 20, or 25 years. 

4. COVID-19 Relief Options – Due to the pandemic, in addition to traditional SBA funding programs, the government instituted the CARES Act and subsequent legislation, which have established several new temporary programs to address the COVID-19 outbreak.

How to Apply for SBA Loan?

Each program has specific eligibility criteria and an application process. Lenders also have unique requirements. To apply for SBA loans, you need to begin discussions with an SBA-approved lender either directly or through a broker. 

Once you've chosen a lender, visit the SBA website and fill out the loan application form. To complete your application, you'll need to provide documents and information verifying your business's identity, legality, personal and business history, and creditworthiness.

Your lender will require you to submit documentation and financial information such as your credit score, personal and business financial statements, tax returns, resumés, business plans, authorization for credit, and background checks along with a completed loan application. These will aid in determining your eligibility. 

The lender will assess your qualifications and determine if you are approved for a loan. 

SBA Loans offer competitive terms and benefits for small business owners that may otherwise be unavailable. Especially during the pandemic, they have been a source of relief for many companies. 

For further information on the SBA loan process, you can visit your local district office. Loan Quail also offers great SBA Loan resources. Visit our website at loanquail.com to learn more. 

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