Small Business Administration (SBA) loans are U.S. government guaranteed loans that are designed to help small businesses obtain financing if they aren’t eligible for traditional forms of funding. These loans are typically offered by banks and other lending institutions, but they are backed by the SBA, which means that the U.S. government is responsible for a portion of the loan if the borrower defaults.
SBA loans can be an affordable and flexible financing option for businesses that need capital to operate or grow their business.
They feature favorable rates, a more lenient approval process, and terms that vary depending on your needs.
In this guide, we’ll explore everything you should know when exploring an SBA loan including the requirements, type of loans available, and more.
SBA Loan Eligibility Requirements
To be eligible for an SBA loan, a business must meet certain requirements.
- The business must be for-profit and located in the United States. Additionally, the business must have a reasonable amount of equity, as well as a proven track record of success. In terms of the loan itself, the loan must be used for a specific purpose, such as purchasing equipment or expanding the business.
- Additionally, the loan must have a reasonable repayment schedule, with monthly payments that are affordable for the borrower. There are several different types of SBA loans available, each of which has its own specific requirements. The most common type of SBA loan is the 7(a) loan, which can be used for a variety of purposes, including working capital, purchasing equipment, or refinancing existing debt.
SBA Small Business Size Standards
In order to qualify for an SBA Loan, a business must qualify as a small business, according to the SBA size standards.
What is considered a small business according to the SBA?
A small business size standard is a set of criteria, either in terms of number of employees or average annual revenue, that a business must be less than in order to qualify as a small business. It varies by industry and is subject to change at the SBA’s discretion. To find out if your business qualifies under the latest guidelines of what a small business is for your industry, download the pdf here.
Type of SBA Loans
7(a) SBA Loan
What is a 7(a) SBA Loan?
A 7(a) SBA loan is a small business loan that is guaranteed by the U.S. Small Business Administration (SBA). This type of loan can be used to fund almost any type of business need, such as starting up a business, expanding an existing business, purchasing equipment or real estate, consolidating debt, and more. However, the SBA does not actually lend money; instead it works through approved lenders and partners (such as a business loan broker like Llama Loan) to provide guarantees for qualifying loans made by these lenders. This reduces risk for the lender and encourages them to make long-term, low-interest loans to small businesses. A 7(a) SBA loan can offer competitive interest rates and flexible repayment terms that are not available from traditional banks or lenders.
Am I eligible for a 7(a) SBA Loan?
To qualify for a 7(a) loan, a business must have a credit score of at least 680 and have at least 3 years of business tax returns. With the 7(a) loan you can receive up to $350,000 over a 10 year time period.
Interested in learning more about SBA 7(a) loans? Learn how to apply here!
504 SBA Loan
What is a 504 SBA Loan?
Another popular type of SBA loan is the 504 loan, which is specifically designed to help businesses purchase real estate or equipment. The 504 loan is a longer-term financing option for small businesses that need to purchase fixed assets such as real estate, machinery, and equipment. The SBA 504 loan offers more advantageous terms than conventional loans due to its lower down payment requirements, longer amortization schedule, and fixed interest rates. The amount of the loan can range from $125,000 up to $20 million depending on your business size and the specifics of the project. This loan program is great for small businesses who need capital for specific projects with better terms.
Am I Eligible for a 504 SBA Loan?
To qualify for a 504 loan, businesses must meet specific eligibility criteria, just as you would with a 7(a) loan. The business must be considered a “small business” according to the SBA’s size standard guidelines. It must operate primarily within the United States or its territories; it must demonstrate an ability to repay the loan; and it must have a reasonable investment in equity. Additionally, eligible applicants must demonstrate that the loan will be used to create or retain at least one job for every $100,000 borrowed.
The SBA also requires that the owner of the business have a satisfactory credit history and must show evidence of sound management practices. The enterprise must provide a detailed business plan, which includes financial projections and capital requirements, as part of their application. Once approved, the SBA typically takes 30-90 days to process applications.
Microloans
What is an SBA Microloan?
A Small Business Administration (SBA) microloan is specifically designed to help small businesses that seek smaller amounts of capital. These loans range from $500 to $50,000 but the average microloan is $13,000 according to the SBA. They are usually offered with lower interest rates and longer repayment terms than traditional business loans, making them ideal for many businesses.
One of the biggest benefits of an SBA microloan is that it can provide much-needed cash flow to businesses that may not otherwise qualify for traditional financing due to their lack of credit or collateral. Additionally, the process for applying for an SBA microloan can be simpler and faster than the time-consuming process associated with larger business loans.
Am I eligible for a SBA Microloan?
For a microloan, every lender has its own requirements but they are usually more lenient than other forms of loans because of the smaller dollar amount. Generally, a lender will require a form of collateral and a guarantee from the business owner, but some lenders may require more.
SBA Express Loans
What is an SBA Express Loan?
SBA Express loans are specifically designed for businesses who need cash quickly.
These loans can provide up to $500,000 in funding for businesses within a matter of days or weeks, instead of months. Interest rates cannot exceed the SBA maximum rate and the maturity of the loan cannot exceed 10 years.
Am I eligible for a SBA Express Loan?
To be approved for an SBA Express loan, you’ll need to meet all of the standard SBA loan requirements but lenders are granted more control of Express loans due to the nature of the expedited turnaround. It’s best to talk to a lender to determine your eligibility for an SBA Express loan.
How Llama Loan Can Help
If you are interested in any of these types of loans and believe your business and believe your business qualifies, Llama Loan is here to help.
Our business loan brokers can help guide you through the process and answer any questions you may have about qualifying for an SBA loan. Additionally, we provide a shortened application that can expedite the process and ensure you get the best rates and terms available. Get Started or Contact Us today.
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