Everything You Need to Know About SBA Loans

The Small Business Administration (SBA) has been a trusted resource for business owners since it was founded in 1953. They work with a variety of financial institutions to offer financial resources that are often used for inventory, real estate, equipment and a variety of other purposes that help to advance the objectives of a business. Many entrepreneurs and small business owners look to the SBA when they need working capital and quickly find out about the stringent requirements during the application process. Since SBA loans typically have low interest rates, it’s worth the effort to go through the process, which is usually quite lengthy.

Part of the SBA’s mission is to strengthen the economy of the United States and protect the interests of small businesses. To that end, they are motivated to fund loans because it’s primarily why they exist. The SBA also distributes government contracts and provides educational support. Committed to supporting diversity, the SBA offers resources for businesses owned by women, veterans and minorities. They have also contributed a great deal to the success of startups.

If you need a loan for general business purposes, you’ll probably want to participate in the SBA’s 7(a) loan program. They also offer loans that are more customized, such as disaster loans and microloans. Individuals looking for loans of a higher quantity will typically apply for a CDC/504 loan. This type of loan is often used for equipment or real estate. The smaller loans are ideal for inventory and basic startup costs.

It’s important to understand that the SBA is not a lender. Instead, they partner with credit unions, banks and non-profit organizations that are the loan originators. The SBA actually guarantees part of the loans funded. As previously mentioned, the application process for an SBA loan is stringent. It’s also comprehensive, which usually makes it a low risk loan. One of the reasons why SBA loans are so highly coveted is because they offer lower rates than you are likely to find anywhere else. They also offer the best terms available.

Obtaining a loan through the SBA typically requires you to have been in business for a minimum of two years, possess a personal credit score of at least 650, and have a business credit score of at least 150. All business owners must sign a personal guarantee. It’s also worth mentioning that the repayment terms can range from 10 to 25 years, with some exceptions. You’ll be required to submit a wide variety of business and financial documents, such as financial statements, tax forms, balance sheets and your resume or CV. You can get guidance from SBA officials on loan requirements and processes.

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