The Small Business Administration is a U.S. government agency that helps small business owners and entrepreneurs build their businesses. It provides counseling, capital, and contracting expertise.
The SBA itself does not issue loan programs. Instead, it works with lenders who provide loans to small businesses, and the SBA guarantees those loans. This means that if the business does not pay back the loan, then the SBA will pay a large portion of it back to the lender.
This means that there is greatly reduced risk for the lender and that they can afford to make loans that they may otherwise not be able to. Here are some of the possible advantages of SBA loans to small businesses:
- Greater access to capital
- Lower interest rates, since the risk to the lender, is lower
- Longer term to pay back the loan
- Loans may be larger
SBA loan programs are great for the many small businesses that take advantage of them every year. There are, of course, some disadvantages as well.
These disadvantages include:
- Not all lenders participate
- The lending process can be much longer
- Extensive paperwork is required, including tax returns, financial statements, projects, and plans
- Strict underwriting requirements, such as a high credit score and 2+ years of history
The main types of SBA loans are 7(a) loans, 504 loans, and microloans.
SBA 7(a) loan programs
are the most commonly accessed loan program of the SBA. This is the best SBA option if real estate purchase is involved, although it can also be used for working capital, refinancing already existing debt, and the purchase of furniture and supplies.
SBA 504 loan programs
are long-term and have a fixed interest rate. The maximum loan amount is $5 million USD, to be used for major fixed assets that promote job creation and business growth. This loan type cannot be used for working capital, repayment or refinancing of existing debt, or rental real estate investment.
SBA Microloans
are smaller loans with a cap of $50,000 USD in financing. These can be used for a wide variety of purposes: working capital, inventory, machinery, and equipment are some of these. They cannot be used to refinance existing debt or to buy real estate.
The SBA also has other products that they provide through partnering banks, like export financing that can help you expand your business with overseas sales.
By working with CreditPush, you can boost your credit score to help meet the SBA’s strict underwriting requirements for these loan programs. If you can meet these requirements, and have time to go through the lengthy underwriting process, then an SBA loan might be the right match for your business.
