Why Should You Want an SBA Loan?

The Small Business Administration works with lenders to guarantee loans to small businesses. These SBA loan options are available to businesses that would not be able to get them otherwise, due to the government backing.

Due to the  SBA guarantee, lenders are able to offer lower rates and better terms than would otherwise be available. However, there is typically a lot more red tape, making the approval process longer than non-SBA loans.

Overview of Qualifications for SBA Loans

The SBA uses FICO SBSS (Small Business Scoring Service). Scores run 0 – 300, and you will typically not gain approval if score < 140.  Yet, a typical cutoff can be as high as 160. In addition, you will usually need to show some time in business, and if you have more than a 20% ownership, you will need to provide a personal guarantee.

#1 SBA 7(a) Loans

To get a 7 (a) loan you’ll need to first demonstrate need for funds and have a sound business purpose in mind. You’ll also have to meet SBA size standards for a small business. Additionally, a business must do, or propose to do, business in the United States or its possessions. You also have to try to use other financial resources before applying, including personal assets.

#2 SBA CapLines

The SBA offers 4 CapLines, each designed for a different type of business.

• Seasonal Line
  • Advances against anticipated inventory and accounts receivables
• Contract Line
  • Finances direct labor and material cost of performing assignable contracts
• Builders Line
  • For GCs or builders constructing or renovating commercial or residential buildings
• Working Capital Line
  • Must have accounts receivable or inventory. Meant for short-term working capital or operating needs.

#3 SBA Express

This is a faster way to get a SBA loan options of up to $250,000. Typical rates are 2-4% above prime rate.

SBA lets banks charge up to 6.5% over their base rate, and loans over $25,000 require collateral.

#4 SBA 504 Loan Options

These are often to buy land, equipment, or real estate. You can get a loan of up to $1,000,000, and the typical borrow contribution is 10% of equity.

The business must be a for profit operating in the United States or its territories. Same as a 7(a) loan, you  must try to use other financing before applying. Average net income must be less than $5 million after taxes for the last 2 years.  Also, you have to be able to repay the loan on time from projected operating cash flow.

#5 SBA Microloan Program

These loans are for working capital and growth. As the term “microloan” indicates, they are for smaller amounts averaging from $10,000 to $13,000. However, you can get up to $50,000. These funds are made available through specially designated intermediary lenders. They are nonprofit community-based organizations with experience in lending, management, and technical assistance.

#6 Community Advantage Loan Options

This program has been extended to 9/30/22. The goal is to promote economic growth in underserved areas and markets. It allows those that make credit decisions to overlook certain factors. So, things like poor credit or low revenue do not have as negative of an impact on approval. This is for businesses that have potential to stimulate the economy or create jobs in underserved areas.

#7 SBA Export Working Capital

This program provides financing for suppliers, inventory, or production of export goods during long payment cycles.  In addition, it allows for financing for stand-by letters of credit used as a bid for performance bonds or down payment guarantees.

SBA Loan Approval is Not Just Luck of the Draw

SBA loan approval is not subject to the luck of the draw. They have strict standards that you have to meet, but the required credit score is typically lower than non-SBA loan options, and the interest rates are usually lower. These benefits outweigh the longer application and approval process for many business owners.

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