A Beginner’s Guide to SBA Loans

Small business owners often lack the additional funds needed to expand their businesses. They may also experience working capital deficiencies that make it difficult to carry out daily operations. To help these small companies or start-ups survive and expand their operation, the US government established the Small Business Administration(SBA). It runs the SBA loan program, which offers a variety of loans ideal for small business owners that fail to meet the qualifications for traditional bank loans. It works through lenders who are tasked with assessing your eligibility. Here is further insight into SBA loans.

What Are the Types of SBA Loans?

The SBA loan program is mainly divided into four categories. It comprises of general small business loans, microloans, disaster loans and real estate and equipment loans. Each of these categories come with their conditions and are applied for separately.

What Are the Requirements for SBA Loans?

Although extensive documentation is a necessity when applying for SBA loans, its qualifications are often less stringent in comparison to traditional bank loans. The SBA typically provides funding to a business that has been operational for at least two years. They also evaluate the lender’s personal and business credit score that should be at a minimum score of 620. Additionally, they often ascertain if the business is a healthy one by checking its annual revenue. Your venture does not necessarily have to be a profitable one, but it should be sustainable. There may be other requirements, depending on the lender.

What Are the Steps for Obtaining an SBA Loan?

The small business owner first gets in touch with the lender to present their business plan. They afterward complete the loan application and submit it to the lender for assessment. Upon review, the lender sends the application to the SBA for them to also evaluate if the business can reimburse the loan. Upon approval, the SBA informs the lender and they both sign the loan agreement leading to the authorization of the disbursement of funds.

What Can You Use an SBA Loan for?

You may use funds obtained from SBA loans to buy a business or expand it. You can also choose to purchase real estate property or renovate existing office buildings and apartments. The funds may also come in handy when purchasing supplies or machinery. Additionally, you may use it to boost your working capital deficiencies for a short-term or long-term basis.

By understanding the available types of SBA loans, the requirements for obtaining it, the steps followed to acquire it and what you can use it for, you may be able to decide if this source of financing is ideal for your business.