The U.S. Small Business Administration is an agency set up by the government. It provides financing and support to small businesses. This loan is offered by financial institutions while being partially guaranteed by the SBA.
The agency was set up by the U.S. government to strengthen the economy by aiding small businesses. An important role of SBA is to provide counseling to individuals who want to start or grow a business.
The SBA is led by an administrator and a deputy administrator. It also has an inspector general and a chief counsel for advocacy. Each state has at least one office of the Small Business Administration.
How does it work?
On applying for an SBA loan, you need to submit an application to the lender. The lender will then apply to the SBA for a guarantee. This means that if you default, the lender will be paid the guaranteed amount by the SBA.
You also need to provide an unconditional personal guarantee from every owner with at least 20% stake. On approval, the lender is responsible for disbursement. Payments are usually done on a monthly basis directly to the lender.
You need to fulfill certain requirements to qualify for an SBA loan.
- Your business needs to operate and owned in the country.
- You do not have funding options anywhere else. Before you try applying for an SBA loan, you need to try to apply for a traditional loan.
- You must meet the guidelines set by SBA for qualifying as a small business.
- Your business and personal credit score also play an important role in deciding whether you qualify for a loan.
Types of SBA Loans
Different types of loans are offered by the SBA, depending on your business needs and type of business.
- 7(a) loans: This loan is the most popular and flexible type of loan offered by SBA. This type of loan is used for various reasons like real estate, buying equipment, and debt refinancing. With an amount of up to $5 million, the term for these loans can be from around 5 years for working capital loans to 25 years on commercial real estate.
- 504 loans: These loans can be used to fund real estate purchases, machinery or equipment purchase, or business expansion. These loans are available in varying amounts with terms ranging up to 25 years.
- CAPlines: This program is designed to help businesses meet their capital needs. This loan is usually ideal for a business that needs a revolving line of credit to meet expenses. This loan is given in addition to 7(a) or 504 loans.
- Export loans: These loans help businesses to expand export and enter foreign markets. Companies that have international business usually opt for these loans.
- Microloans: These loans are great for small business and nonprofit centers that have low working capital requirements. A microloan can be used for the purchase of furniture, equipment, inventory, or for working capital.
- Disaster loans: These loans are offered as disaster assistance for natural and economic disasters.
Once you have determined that you need an SBA loan, you need to apply and have documents ready. Documents like borrower information forms, statement of personal history, business, and personal tax returns, business license, financial statement, etc. have to be provided. Depending on factors like chosen lender and review of documents, approval can take 30 days to a couple of months.
