5 Things You Might Not Know About SBA Loans
1. SBA loans often have low down payments
The SBA is a government agency designed to help small businesses in the United States. One way that the SBA assists businesses is by connecting them with affordable financing. For instance, many business owners don’t realize that SBA loans have inexpensive down payments. Because part of the loan is guaranteed by the SBA, the lender requires less money up front from the borrower than they would with other types of financing. Additionally, many SBA loans offer longer loan terms than conventional business loans, often keeping the payments lower and more affordable as well.
2. SBA loans don’t always require collateral coverage
With other financing options, you might be required to put up collateral to receive a reasonable interest rate. If you don’t have a lot of assets, this can be extremely challenging. Many business owners use real estate as collateral, which can be a huge risk.
One of the most popular SBA options, the (7a) loan, doesn’t require any real estate for other collateral. This program is useful for business owners who wish to start a new business, acquire an existing business, obtain expansion financing, use funds for export activities, begin offering employee stock ownership plans, or seek equipment financing. Not having to put up collateral when applying for a loan will make the process less stressful, and lessen your risk when receiving a loan.
3. The SBA offers loan amounts up to $5 million
Many applicants think that because the SBA works with small businesses, they won’t supply a large financing amount. However, the 7(a) loan and SBA 504 loan programs offer financing up to $5 million dollars! The two products are used for different needs, so research both options to see which one will be the best fit for your business.
4. The SBA can finance “special use” properties
While real estate collateral can be an advantage when applying for a loan, not all real estate is created equal. In fact, many properties that are considered “special use” like gas stations, specialty medical businesses, or golf courses, can be hard to finance conventionally. However, the SBA doesn’t typically shy away from these requests simply due to the property type, so this could be a viable option!
5. The SBA offers disaster recovery loans
Unfortunately, disasters can negatively affect small businesses, leaving them with significant damages. Although insurance companies can help lessen your losses, there can be aspects of your business that are not covered. In these cases, you might benefit from receiving an SBA disaster loan to get back on track.
The SBA offers loans up to $2 million dollars that can be used to repair or replace business property that sustained damage or was lost due to a natural disaster. Loans in this category can be used for buildings or other real estate, equipment, machinery, inventory, supplies, and other areas. In some cases, proceeds from these loans may even be used for modifications that will help protect against future disasters as well.
While SBA loans are among numerous financing options available to business owners, they do offer quite a few options that fit “niche” markets that are not as easy to finance in the mainstream lending market. As a business owner, understanding what the SBA offers can help make your search for financing easier!
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.