Small business owners could always use financial help especially if they want to expand their business to new horizons. SBA Loans make dreams possible for entrepreneurs by providing a fixed-rate loan to fund ventures. This type of loan is guaranteed by the US Government’s Small Business Administration and can be acquired from private lenders. Borrowers usually seek loans that are supported by the government, especially those who want to start their own businesses.

Taking out an SBA loan has been made much easier as there are lots of creditors that are willing to lend their money, so you’ll have lots to choose from. At present, SBA loans are issued by over 800 creditors, from local banks to community organizations, and by 2020, it has been reported that SBA Loans totaling an amount of $28 billion were loaned by these lending institutions.

The 7(a) Loan Program by the SBA secures money for you. As written in the program guidelines, the SBA will shoulder a portion of the funds that you requested from a lender if they failed to provide it to you.

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What to Look For in SBA Loans?

Interest rates when it comes to SBA Loans are fixed as per regulation by the government. Therefore, you may observe that there’s a lesser interest rate with SBA compared to other business loans. Moreover, entrepreneurs choose this type of loan because it is reassuring that they are guaranteed by the government that they will receive money.

Two of the important things to look out for are the annual percentage rate (APR) and the interest rate when looking for a small business loan. Although there’s a fixed rate determined by the government, interest rates might still differ amongst lenders. So, soliciting information about lenders, such as their background and history, the application process, and customer relations, is also crucial in determining which lender would you choose for your SBA Loans.

7(a) Loan Program

Acquiring 7(a) SBA Loans is, perhaps, the easiest loan to acquire as many small business owners apply for this loan. Any type of business of any size is eligible for this loan wherein a sum of $5 million could be granted to the borrower. Given the mix of huge amounts of money and the versatility of what to use the money for, it’s a highly compelling loan program choice for new businesses.

504 Loan Program

A business cannot function without facilities and equipment, right? SBA 504 loan program is the perfect type of SBA loan if you need funding for your office supplies and resources. The loan functions like the 7(a) Loan Program but it is intended exclusively for big, fixed expenditures. With SBA 504, you can borrow up to $20 million and have access to lengthy payback terms.

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Express Loans

From its name, SBA Express Loans provide quick cash. This is suited for those who need emergency funding because it greatly shortens the processing period to get the approval, which usually takes just 36 hours. Businesses that have urgent and particular demands are most likely granted this loan rather than newly established ventures. However, the maximum loan amount that you can get is $350,000 which is relatively small compared to other SBA loans. Express loans are fast and they come in handy if you don’t need a big lump sum to address your urgent needs.

More About SBA Loans: Costs, Guarantees, and Application

Rates and fees still differ based on the type of SBA loan. And of course, the market has a huge influence in determining loan rates. Standard 7(A) loans offered by the SBA have interest rates ranging from 7.75% to 10.25%. Lower rates are for those loans with shorter repayment periods or less than 7 years, while higher rates are for loans with longer payback terms or more than 7 years. Moreover, the repayment period for SBA Loans could get extended by 10 years when you use the money to buy new equipment for your business or by 25 years when you buy a property.

The sum that the government has promised to pay for the debt is known as a loan guarantee. It ensures that the creditor will still be paid the full amount by the government in the case of a deferral. Lenders can receive up to $3.75 million in compensation. So, they can confidently offer SBA Loans to clients with cheaper installments and offer flexible terms thanks to loan guarantees.

The approval process and funding take about 2 to 3 months for SBA Loans. The duration is decided based on several factors such as the type of loan the borrower seek, the applicant’s qualification and creditworthiness, and other aspects that differ from every business. If you need money immediately, you can apply for an SBA Express Loan which has a faster approval process of only about 36 hours and they will deposit the funds directly to your bank account after a few weeks.

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When granting SBA loans, lenders are required to abide by the rules and regulations set forth by the Small Business Administration. Those who seek SBA Loan must have a prof-making enterprise operating in one of the states and territories of the United States in order to be eligible for the loan. Using SBA Loan as their last result, it should be proved that the borrower explored all alternative funding possibilities. Moreover, they must have made personal investments in the company, including time, money, and effort.

As mentioned, there are two additional types of loans, aside from the standard 7(a) Loan Program, that are issued by creditors, each of which has its own restrictions. If you seek an SBA Loan that has a fast approval process, the SBA Express Loan is perfect for you and you can borrow up to $350,000. The loan amount is also similar to 7(a) small loans which you may also acquire $350,000.

Requirements needed to qualify for SBA Loan:

• Borrow amount. You may only borrow up to $5 million

• Credit Score. Have at least a credit score of 680, but other lenders accept those who have a 620 credit score

• Collateral. For loans of up to$25,000, collateral is typically not required. But loan between $25,000 and $350,000 includes some form of collateral. While for loans worth more than $350,000, the SBA mandates that creditors should require collateral that has the same worth as the borrowed amount.

• Type of Business. Even though their operations are legitimate in the state where they are based, companies engaged in some sectors, such as medical research and gambling, among other things, are not qualified.

Generally speaking, the application process for an SBA loan is longer than it is for a standard business loan. There are factors that lenders might take into account when applying for SBA Loan including their personal background and past records. Also if there’s a shareholder who owns 20% or more of the company, they are required to submit some documents about their identification and agree to a personal guarantee. Lenders might also have to investigate the business in which employees might present a resume highlighting their background in business and employment.

The owner’s financial statements and tax returns must also be submitted along with the company’s. The business plan should also be ready in case the lender asks for a detailed description of the allocation of the loan money. Personal and business credit report is also required by some creditors.

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SBA loans are created to simplify the funding process for small enterprises. An SBA loan can be available to your company if all other funding alternatives have been considered. Additionally, the government caps the SBA loan rate, so there’s no worry about paying the small business loan APR and outrageous interest rates that comes with other types of business loans.

You may use SBA Loans to acquire property and land, acquisition or expansion of an established business, cover the current debt, pay for construction expenses, and buy equipment, furnishings, materials, and resources.

The optional peg rate, LIBOR rate, or prime rate is used to connect maximum interest rates to a base rate. But they usually use the prime rate established by the Wall Street Journal which usually exceeds the federal funds rate by 300 points.

For reference, here’s the maximum amount for SBA Loans.

Updated SBA Loans

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Since you may only apply for SBA Loans if you’ve already tried other options, you may consider the following loan types first:

1. Line of Credit or Business

An agreement under which a lender provides credit to a borrower for their business.

2. Term Loans

Among these are secured and unsecured business loans. Unsecured loans often have lower APRs, but the business owner must have excellent credit to qualify.

3. Credit Card

There are companies that provide introductory periods with 0% interest charges on their credit card. This is best to pay minimal startup costs without accruing debt.

4. Invoice Factoring

Creditors buy the company’s accounts receivable to pay for your unpaid bills.

5. Merchant Cash Advance or MCA

MCA works by taking out loan money and you pay it back by deducting a certain portion from daily, weekly, or monthly sales.