What Are SBA Small Business Loans?

According to the Small Business Administration (SBA), at the end of 2019, there were 30.7 million small businesses in the U.S., which account for 99.9 percent of all U.S. businesses. This means that despite the proliferation of global corporations, small businesses represent the heart of the country. At some point, we have all interacted with a small business. 

 

The SBA defines a small business as a firm with fewer than 500 employees which means even well-known startups may fit into this category. These small organizations may require funding for startup capital, expansion, or disaster relief caused by a natural disaster or pandemic. 

 

The SBA, a U.S. government agency that provides support to entrepreneurs and small businesses, is an excellent option when considering a loan. 

 

What are SBA Loans? 

 

The SBA works with private-sector lenders to provide loans to small businesses. While the agency doesn't lend money directly to business owners, it sets guiding principles for SBA small business loans made by its partnering lenders, community development organizations, and micro-lending institutions. The SBA reduces the risk for lenders and makes it easier for them to access capital, which benefits small business owners.

 

Types of SBA Loans

 

Depending on your company's needs, different SBA small business loans are available to you. SBA loan programs include:

 

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

 

Microloan Program This 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. 

CDC/504 Loan Program - This 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. 

 

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 has established several new temporary programs to address the COVID-19 outbreak. The options include:

 

  • Paycheck Protection Program

  • COVID-19 Economic Injury Disaster Loans 

  • SVO Grant Program

  • SBA Express Bridge Loan

  • SBA Debt Relief

  • Cross Program Eligibility

 

How SBA Loans Work

 

As previously stated, the SBA does not give money directly to borrowers. Instead, they offer loans through private lenders such as banks and credit unions. To qualify for an SBA loan, small businesses must meet the eligibility criteria set out by both the SBA and the SBA-approved lender. According to the SBA, eligibility is based on what a company does to receive its income, the character of its ownership, and where the business operates. Typically, businesses must meet size standards, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding. 

 

In general, the criteria, however, are simple. The company must: 

 

  • Be a for-profit business officially registered and operates legally.

  • Do business in the U.S., and is physically located and operates in the U.S. or its territories.

  • Have invested equity. This means the business owner has invested their own time or money into the business.

  • Finally, exhausted financing options. The business cannot get funds from any other financial lender.

 

Once the application is completed and submitted, the lender will then assess your qualifications based on your ability to repay the loan, your business experience, the equity you've invested in your company, how much debt you have, and how likely you are to repay it, and whether or not you need to put up collateral to secure financing.

 

SBA loans can take several weeks to process, although the agency has recently introduced the SBA Express loan process, which business owners can complete in days instead of weeks. However, this loan is more challenging, and applicants must have high personal and business credit scores to qualify for the SBA Express process. 

 

To determine if you qualify for an SBA loan, check with us at Loan Quail before starting the application process. Browse our website for more details on how you can get started. 

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