You may need funding if you are the owner of an established small business. There are many reasons for this – you need equipment, real estate, or a marketing budget, for example. One option you might want to consider is getting an SBA loan.
What is an SBA loan?
SBA stands for Small Business Administration, a government agency offering small businesses aid. In addition to counseling services, the SBA can also help small businesses secure the funding they need through SBA loans.
The SBA sets guidelines for its partners that supply the actual loan. These partners include banks, credit unions, microlenders, and community organizations. In addition, the SBA provides a government guarantee that some part of these loans will get repaid. This lowers the risk for lenders.
The SBA regulates the amount of money that you can borrow. It also ensures borrowers have lower interest rates than they normally get from a bank.
How to qualify for an SBA loan
Extensive financial documentation is required when you apply for an SBA loan. The SBA then evaluates your business to make sure the loan makes sense.
What do SBA loans cost?
SBA loans have interest and fees. These include application fees, appraisal fees, and sometimes a credit check fee. There is also a guarantee fee that borrowers have to pay so that the government will guarantee part of the loan.
Benefits of an SBA loan
SBA loans make it easier for small businesses and startups to access capital funding. The SBA guarantee lowers the risk of loan default. This allows lenders to risk loaning money to a company that doesn’t yet have much of a cash flow or that doesn’t have enough of a down payment.
Other benefits include:
– Lower interest rates: The maximum interest rate on a 7(a) SBA loan over $50,000 is just 2.75% over the prime rate. This is lower than the rate small businesses would get from a conventional bank.
– Flexible payment options: In certain situations, borrowers may be able to defer SBA loan payments.
– Easier qualifications: You can have a lower credit score than you need to procure a conventional loan.
– Establishing credibility as a borrower: You can use an SBA loan to improve your credit rating and qualify for larger conventional loans if needed.
– Longer timeframe: Lenders often provide a longer time frame for SBA borrowers to repay their loans. This often allows lower monthly payments.
Are there any drawbacks?
There are also some drawbacks to an SBA loan:
- Getting the money you’ve applied for can take as long as 90 days.
- A sound business plan is needed as part of the application process, and personal guarantees from all partners who own 20% or more are required.
- The business must have been operational for at least two years.
Lantern by SoFi is a great place to check out sba loan rates for the different types of SBA loans that you might qualify for. It’s an online marketplace that provides valuable information that you can use as you evaluate various options.