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The Ultimate Guide to SBA Loans

Learn about financing options provided by the Small Business Administration.

Ultimate Guide to SBA Loans - business man smilling

How SBA Loans Work:

The Small Business Administration (SBA) provides numerous financing options to business owners nationwide. Many people don’t realize that the SBA doesn’t directly loan money to businesses; they work with banks to guarantee loans in case the business defaults. Then, these traditional banks loan money to the business as an SBA loan.

If you’re interested in SBA loans, keep reading to find out if you meet their qualifications.

SBA Loan Requirements:

  • Use funds for business-related uses.
  • Have a decent amount of business equity.
  • Be an officially registered, for-profit business that’s based in the U.S.
  • Have no past-due payments on federal government loans.
  • Typically, you’ll need a credit score above 620.

What You’ll Need to Apply for an SBA Loan:

  • SBA Form 159
  • SBA Form 355
  • Business license
  • A comprehensive business plan
  • Personal tax returns
  • Information about your personal history (including SBA Form 912)
  • Business tax returns
  • Balance Sheets
  • Profit & Loss Statements (detailing your business’s cash flow)
  • Debt schedules
  • Loan application history
  • Personal resume
  • History of your business
  • Your business location lease

Benefits of SBA Loans:

SBA loans have a few notable benefits, such as:

  • Low Interest Rates: Starting at 7.75 percent
  • Long Repayment Terms: Ranging from 5 to 25 years.
  • Usage Flexibility: In particular, the SBA 7(a) loan can be used for various costs, such as inventory, equipment, real estate, refinancing debt, and expansion projects.
  • Less Risk for Lenders: Because the loan isn’t fully provided by the SBA, it’s less risk for both them and the bank. Due to this, it can be easier to qualify for SBA loans.

In addition, there are numerous types of SBA term loans, which we’ll detail below.

Types of SBA Loans:

SBA 7(a) loan:

This is the most popular SBA product. It provides flexibility to small business owners looking for up to $5 million in additional working capital. It can be used for real estate, refinancing existing debt, purchasing equipment, among other common uses. To qualify for this SBA loan, you’ll need to be a U.S. based, for-profit business.

SBA 504 loan:

The SBA 504 loan is typically more challenging to qualify for than the 7(a) loan, but they usually have fewer fees than other SBA financing options. Also, no additional collateral is required to qualify. You can use this SBA loan for startup costs, refinancing existing debt, repairing existing capital, among other uses.

Microloans:

The SBA loans money to community-based non-profit, non-traditional lenders. Then, these lenders provide business owners with loan amounts up to $35,000. With the SBA Microloan program, you can purchase inventory, furniture, equipment, and afford other business expenses.

Disaster Loans:

If your business experiences damage from a declared disaster, such as a drought, fire, storm, or flood, you can receive low-interest financing from the SBA to make it through the difficult time. SBA Disaster Loans can be used for inventory, real estate, equipment, restructuring debt, and other costs that will help you continue your business.

Export Loans:

The SBA provides lenders with up to a 90 percent guarantee on export loans. There are three types of export loans: Export Express, EWCP, and International Trade Loan Program. These SBA loans serves as a credit enhancement, and then the lenders can make the required export financing available.

CAPLines:

This type of SBA financing provides recipients with fixed or revolving lines of credit. You can receive up to $5 million. With CAPLines, you can choose a contract loan, seasonal line of credit, builders line, or working capital line of credit.

Express Loans:

SBA Express Loans are a fast way to acquire financing. Once you submit your application, the SBA will let you know if you qualify, and you could receive financing within 36 hours.

Community Advantage Loans:

This financing program is provided through community lenders, and is available to startups and other businesses in high-need communities.

Questions to Ask Before Applying for an SBA Loan:

Step number 1 icon
Do I meet the minimum requirements for an SBA loan?
Step number 2 icon
Which SBA loan is best-suited for my business?
Step number 3
Are there other financing products that I could utilize instead?

How SBA Loans Are Different From Other Financing Options:

Before applying for an SBA loan, you should make sure that you weigh your options. Here are some other financing options that small business owners pursue, and how they differ from SBA financing.

Credit Cards: One notable benefit of business credit cards is that they rarely have usage restrictions. However, as previously mentioned, there are some restrictions on how you use certain SBA loans. Another difference between SBA loans and credit cards is that credit cards have higher interest rates.

Merchant Cash Advances: When you receive a cash advance, you’ll receive a lump sum in exchange for a percentage of your business’s future credit card sales. Unlike SBA loans, this product doesn’t have set repayment terms.

Lines of Credit: With a line of credit, you’ll have access to a certain amount of financing, and can draw up to the limit. The terms aren’t as strict, and there’s typically no restrictions on how you use it.

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