SBA loans are a type of small business loan that is offered by the Small Business Administration (SBA). It is a government-backed program that offers loans for small businesses at low-interest rates with flexible terms and conditions. The majority of these loans are for startups and small businesses.
You must have good credit to qualify for the loan. Then, you must be prepared to provide a personal guarantee for the loan. Make sure your credit score is good, and your documentation is in order. It may be easier to apply for a startup loan if you already have the business.
SBA loans come in different terms.Short-term loans have shorter repayment terms which are usually a few months or a year. These loans are good for small businesses looking to make money quickly. On the other hand, traditional long-term business loans are best for businesses that are interested in long-term investments. However, the repayment terms can be up to 10 years.
Types of SBA Loans
Each SBA loan serves a different purpose and features varying requirements. The most common types are:
1. SBA 504 loans allow businesses to purchase fixed assets which are typically real estate, land, machinery, and long-term equipment. You can also use them to repair or modernize existing property, land, streets, utilities, parking lots, and even landscaping. You cannot use an SBA 504 loan for working capital, inventory purchases, investing in rental properties, consolidating debt, or engaging in any other type of refinancing. It is great for small businesses and for startups that are looking to expand themselves. It offers up to $5 million in funding. And the term can be as long as 10 years.
2. Microloans are for small businesses and certain not-for-profit childcare centers hoping to expand or startup. These loans typically provide between $13,000 to $50,000 in funds. These loans are fairly flexible and can be used for purchasing inventory, supplies, machinery, equipment, furniture, and more. They can also serve as working capital. However, funds from an SBA microloan cannot be used to refinance the debt or purchase real estate.
3. Disaster Loans are only available to small businesses and certain nonprofit organizations affected by a declared disaster. These are low-interest, long-term loans intended for alleviating the impacts of physical and economic damage caused by a declared disaster.
4. SBA 7(a) Loans are the most flexible and popular financing solution. These loans maintain a maximum funding amount of $5 million. You can use these funds to purchase inventory, equipment, real estate, refinance debt, and acquire other businesses. SBA 7(a) loans are available through qualifying lenders such as banks, credit unions, and even fintech marketplaces like National.
How to Apply for an SBA Loan?
To apply for an SBA loan, you should first need to fill out the application form and submit it along with your required documents and any other relevant information needed for the application. To qualify you will need:
● Meet the SBA’s size standards for a small business, based on your business’s number of employees and total annual income, or annual receipts.
● Be a for-profit business
● Located and operating within the United States
● Have a reasonable amount of invested equity
● Demonstrable need for financing
An SBA loan requires a minimum credit score of 685. It may be enough for an SBA loan. However, lenders may require additional information, such as collateral, to reduce their risk. Even though this is a low credit score requirement, some SBA-credited lenders have additional requirements for loan applicants.
If you are interested in getting an SBA loan, contact US Capital. Our staff is ready to help you!