If you’re looking to grow your existing business, purchase a new business, or even start your own, a loan backed by the U.S. Small Business Administration (SBA) may be a good choice. SBA loans allow banks to offer terms beyond their traditional offerings. A banker specializing in this area can help you to better understand your options. To prepare you for that initial conversation, we’re providing a brief overview.
Qualifying for an SBA loan
The SBA does not lend money directly, but instead provides guidelines and guarantees to lenders to help reduce their risk. That in turn enables lenders to offer longer repayment terms, alternate collateral requirements, lower down payments, and other benefits to small businesses.
Below are some considerations that come into play with SBA loans.
- Supporting Small Business. While each type of loan has different terms and conditions, a company must be considered small under SBA size requirements. “Small” is based on either number of employees or revenue size, and the standard is industry-specific. For example, a metal window and door manufacturing business cannot have more than 750 employees; a small electrical appliance manufacturing business has to have 1,500 employees or fewer; a graphic design business cannot exceed $7.5 million in revenue; and for a retail jewelry store the limit is $15 million in revenue.
- What and where. Your business must operate for profit in an eligible industry, be located in the U.S. and operate primarily in the U.S. or its territories. Examples of business that do not qualify for SBA loans include those engaged in lending, gambling, politics, lobbying, promoting religion, life insurance companies and speculative businesses.
- Personal character and past credit history, both personal and business, are also key factors taken into consideration. SBA is spending tax dollars to provide these loan guarantees and uses its qualification standards to ensure those tax dollars are being used to promote the success of viable small businesses and their owners.
- Other items that will be considered will be past financial performance if you have an existing business, a well-prepared business plan if you are planning a new business or expansion, and what type of collateral you have available.
Funds from an SBA loan can be used to achieve a number of goals: to finance working capital, machinery and equipment, furniture and fixtures, purchase of land and building including construction and renovation, business acquisition and refinance of existing debt. When you are looking to finance any of these needs, a lender can help match you with the most appropriate SBA option.
Types of SBA loans
While the bank will help to select the type of loan that meets the needs of a company like yours, here’s some key information on each loan type:
- 7(a) – A common choice, and funds from a 7(a) loan can be used for a variety of purposes.
- Express Loan – quick turnaround
An Express Loan can provide up to $350,000 in funding with a quick approval.
- CDC/504 Loan Program – Long-term fixed rate financing
CDC/504 programs benefit small businesses that are looking to buy land, buildings or other fixed assets on longer terms utilizing fixed rates. Funding comes in the form of two different loans – a bank loan and a loan with a Certified Development Company (CDC). The bank typically funds 50% of your financing, the CDC funds 30% to 40%, and the rest comes from you.
- MicroLoan Program – Smaller short-term loans
A microloan is a small, short-term loan with a maximum loan amount of $50,000 typically issued by community lenders and nonprofit institutions. The program is designed to assist small business owners with modest credit needs that do not qualify for financing from traditional sources. Funds can be used for working capital, inventory, furniture, equipment – almost any legitimate business need.
SBA loans may be a great option to help finance your business growth
Whether you’re looking for short or long-term financing, funds for working capital, inventory, commercial real estate or more, an SBA loan may help provide the structure needed to help you purchase, manage or expand your business.
Ready to learn more? We’re here to help. Contact us today to discuss your business. Learn more at https://www.emprisebank.com/business/borrow/sba-loans.