The Small Business Administration (SBA) makes it easier for small businesses, like yours, to get loans. The SBA doesn’t make or give away money. Instead, they help you by providing loan guarantees for certain types of loans made by banks and other lenders to start-up businesses or growing companies. These are called 7(a) loans.
The SBA 7(a) loan program is a type of business loan through the SBA, so named because the statutory citation for the program is contained in section 7(a) of Title 13.[3] It provides small businesses with long-term fixed rate financing for major purchases such as equipment or real estate and working capital to support day-to-day operations.
Basically, the United States government will guarantee part of a loan to your business, which makes it easier for you get financing.
What are SBA Loan Size Limitations?
The SBA does not set maximum loan amounts, but instead provides guaranties for up to 85% of the total loan amount, with a guaranty percentage of either 50% or 75%, depending on the type of eligible loan. The term “loan size” refers to the total amount you plan to borrow, including all sources of money plus any outstanding loans on your business or other assets .
For example: say you want a $100,000 loan from a bank. Your business is worth $200,000, and you have another loan on your home for $100,000 as well. The size of the loan you can get would be limited to that amount or less (or 35% of the value of your business).
As far as actual limits go, they are based on your business’s primary location or branch.
What are the SBA Loan Requirements?
There are a number of requirements that your business needs to meet in order for you to qualify for an SBA loan. Here is a list:
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Must be a for profit, established business that meets SBA size standards (annual receipts/sales of $5 million or less.)
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Business must provide a substantial portion of the financing.
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Must meet certain credit guidelines.
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You may not have any delinquent SBA loans in default or bankruptcy proceedings without an approved payment schedule.
How do you Get an SBA Loan? How do you get an SBA Loan?
You can get an SBA loan through a bank or other lender. You must work with a participating financial institution or nonprofit lender in order to be eligible for this type of loan. A representative from the lender will come to your business, evaluate it and prepare the paperwork for you.
You might also be able to get an SBA loan by working directly with the SBA if your business is in a HUBZone (Historically Underutilized Business Zone), and qualifies for the 7(a) program. The steps to getting an SBA loan through this method are:
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Submit a letter of interest to the district office that serves your area;
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You will be notified of any additional information you need to submit;
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The district office representative will review your business and the loan application with you;
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If approved, all final decisions regarding approval or denial will come from SBA Headquarters in Washington D.C.;
SBA Loan Program Benefits:
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Interest Rates: The interest rate for SBA 7(a) loans is set by the U.S. Treasury, not the lender. You only have to pay a certain percentage of your business’s sales as interest on regular loans, but with an SBA loan you can actually get as close as possible to 0% interest if your business is in good enough shape.
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Fees: The lender will likely charge an origination fee, but those rates are set by the SBA and they’re as low as possible (they’re really just like regular bank fees).
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Collateral: You can use almost any personal or business asset as collateral for your loan. For example; equipment, inventory, or even future sales.
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Timing: You can often get an SBA loan within two weeks if you need money quickly. Other loans like merchant cash advances take much longer to be approved by the bank (and the credit card company if it’s a merchant cash advance).
SBA Loan Program Downsides:
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Unlike a credit card merchant cash advance, you must pay off your loan within 5 years or you will have to pay the loan in full.
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You can’t use an SBA loan to buy inventory. If you’re using a merchant cash advance for that purpose, be aware that most require inventory liquidation at the end of the term.
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You can’t use an SBA loan to pay off credit cards or other debts. If you’re using that type of debt consolidation, make sure it’s an approved lender.
The U.S. Small Business Administration (SBA) does not actually loan money directly to small business owners like typical banks do. Instead, the SBA loans money to banks that then lend it out to small businesses.The way in which this works means that you can qualify for an SBA loan even if your business doesn’t have the best credit score or you don’t have any personal credit at all (or even a personal guarantee).However, not all banks participate with the SBA program.
That’s why it is important to see if your bank is one of them, since they may be the only ones that you can get an SBA loan through.You don’t have to work with a local bank either because there are banks all over the country that participate in this particular lending program. If you find out that you bank does not participate with the SBA, then it might be time to find a new bank and apply for another SBA loan.It depends on the type of collateral that you put up and what your needs are.