SBA Loans

All About SBA Loans

What Is an SBA Loan?

Lack of funding is a major barrier to the start and expansion of a business. This is more so in small businesses because they have access to a narrow pool of lenders. The government appreciates this as much and has offered viable and concrete solution to the problem, the availability of SBA loans for instance.

Jared Hecht, writing for Forbes, states that an SBA loan is a loan which has partially been guaranteed by the Small Business Administration. Because this loan option is a guarantee by the government, the issuer of the loan carries fewer risks, and therefore, lenders are more willing to offer such loans.

The Top SBA Lenders

As a business owner, you cannot make a direct application to SBA. Rather, you are going to work hand in hand with approved lenders, who will evaluate your individual case, and make a decision on whether to extend a loan to you or not.

There is no shortage of SBA lenders, however, there are some which have been observed to be the most active. These include the following:

–Live Oak Bank

–Bank of the West

-Funding Circle

–Fundera

–JP Morgan Chase

The type of lender you choose should depend on the specific needs and preferences of your business. For instance, if you want a quick and an easy small loan, then the lender to choose is Funding Circle. Similarly, if you want a big loan, then, the best lender in a big loan is Bank of the West.

SBA Loan Types

There are various loan programs under the SBA. The SBA (7) a standard Loan is the most common type of loan extended by SBA. This is the loan applied for when businesses are seeking financial help in both the short term and the long term. In this loan, both the borrower and the lender can negotiate a favorable interest rate, however, it must meet the interest rate requirements by SBA. For the loans that are less than $25,000, then, one may not be asked to present collateral.

The SBA (a) Small Loan is the type of loan that is given to an applicant seeking over $350,000. With this amount, one is required to present collateral that has a reasonable price. Again, the maximum amount of interest required by SBA applies.

The SBA 7 (A) Express Loan attracts an amount worth $350,000. With this application, one can access the loan in a record 36 hours. Because this loan has a quick turnaround, the amount of collateral required is 50 %.

The SBA Caplines Loans are loan applications for the short term needs of the business. There are divided into four main categories: seasonal, contract, builder, and working capital. When applying for this loan, be sure to look at your business needs in order to choose the best category.

The SBA 504 Loan is a loan for businesses’ economic development, and therefore, it cannot be used for inventory or working capital. Benefits for this loan include lower cost of interest, lower loan fees, and a lower down payment.

Pros and Cons of SBA Loans

There are a plethora of benefits with applying for SBA loans. To start with, the SBA loan is more lenient to qualify. This is because the government backs as much as 80 % of the loan. The government works to empower its citizens, and in this case, it provides financial options which are not available in commercial lines. Unlike the commercial loans payment which gives a shorter time, the SBA loans can be paid over a longer period of time. This gives the borrower flexibility when it comes to loan re-payments.

The Harvard Business School notes that SBA offers critical financial services to areas which are neglected. As a matter of fact, the program directly touches on the lives of the American people.

SBA loans are not without a fair share of challenges. The biggest barrier to the SBA loan is the amount of paperwork required. This is not only tedious but also time consuming. It should also be noted that the SBA loan takes a longer time to be approved. Therefore, if you are using this option, be sure to make an application for approval and processing.

If you default on your loan, the first thing to be liquidated is your collateral. Therefore, you have to make an informed decision prior to taking this loan. In this regards, it is not prudent to give your home as the collateral.

How to Apply for an SBA Loan

The first course of action is to evaluate if the loan is going to work for you are not. This will largely depend on the health of your business. Much as the terms may be lenient, bear in mind that this is a loan that you are going to pay back.

If you feel that this is the type of loan that you would want, contact your local SBA office with your complete application. The SBA local office will look for factors such as the business model, the amount of loan you are seeking, your credit history, and the possibility of getting collateral for your loan.

You must be armed with a concrete business plan detailing the scope of your business and its viability. You must show the willingness and ability to commit at least part of the loan to the project.

In exceptional circumstances, one can apply for two loans. However, if you are to qualify for two loans, you must have a good credit standing. At the same time, each type of loan is going to attract its own set of requirements, and therefore, you must meet them individually. In addition to that, you must give evidence of a reliable cash flow for your business.

Conclusion

Whereas SBA loans can have a tedious application process, the benefits of are equally rewarding. There is no reason why a business should stagnate due to lack of finances, when an SBA loan is just online steps away. Overall, an SBA loan stands out among the peers.