Different types of SBA loans you can apply for today
If you have faced challenges accessing business funds in the past, you may want to know what SBA loan programs are and if they are a good option for your business. Without a doubt, SBA loans are among the best options when it comes to funding a business. The loans are guaranteed by the government and are normally characterized by low-interest rates and flexible repayment terms. Getting a small business administration loan is the best way to finance your business without getting into a debt cycle. But as much as these loans are popular for business financing, there is one shortcoming that comes with it-getting an SBA loan is tough. But still, the low interest rates incurred by the loans makes them the best option to access business funds. With background research and prior preparation, you may be lucky enough to qualify for one of the cheapest methods of business financing. So what exactly are small business administration loans, and who is eligible to apply?
What are SBA loans?
Even before starting out with the SBA loans guide, it is important to note that SBA does not directly offer the loans to entrepreneurs. Rather, it provides a guarantee to direct lenders and bank loans when providing the loans to business owners. With this guarantee, SBA promises to pay a percentage of the loan in case the borrower defaults. So if you decide to request for an SBA loan, you are basically requesting for a commercial loan through an authorized lender or banking institutions with an SBA guarantee. Small business administration loans can be a great relief for business owners who may otherwise not qualify for traditional loans due to one reason or another. It therefore opens an opportunity for thousands of entrepreneurs to start and grow their businesses.
Types of SBA loans
There are quite a number of SBA loans that entrepreneurs can request for depending on their business needs. The loans can also be used for different purposes including equipment purchases, revolving capital, refinancing an existing debt among other reasons. Each loan program requires individual application and comes with its own terms. Before requesting for an SBA loan, it is important that you get more information on the different loan options available and choose one that most suits your business. You can then approach an advisor or directly speak to the lender and discuss the loan options. Here are the main types of SBA loans you can apply for;
- General small business loans
This is the most common type of small business administration loans available. The loan can be used to cater for a large variety of business needs. This includes purchasing commercial property, debt consolidation, purchase of equipment or paying for operation expenses. In this category, there are also specialized loans available that covers both import and export business needs, short-term working capital needs, rural business needs and more.General business loans have different terms of repayment which can be amortization, collateral or maturity terms. Business owners can borrow up to $5 million. The interest rates vary from one lender to another, but they mostly fall between 2% and 3% depending on the loan term.
Microloans can also be the best option for small business owners. In the microloan program, the maximum amount offered does not exceed $50,000. Microloans are mainly used to start and grow the business. Business owners can also use the loan as working capital, purchase inventory, and purchase machinery and equipment. However, the loans cannot be used for debt consolidation or purchase of real estate property. While direct lenders can also offer the loans, it is the SBA that provides the funds. Lenders have varying interest rates but most of them will fall between 8 and 13%. The repayment terms vary depending on the lender, your business needs and the maximum loan amount you apply for business loans. There are also lenders who will require you to issue collateral for the loan.
- Real estate and equipment loans
Business owners who want to purchase real estate equipment can request for real estate and equipment loans. The loan can also be used to construct or renovate real estate property. For you to qualify for the loan, you should have management expertise, come up with a business plan and be of ‘good character.’ The loans are exclusively used for real estate purposes are not intended for debt consolidation, purchase of inventory or as working capital. Maximum loan amounts depend on how you want to use the loan for. The real estate property to be financed acts as collateral for the loan. Real estate and equipment loans have a fixed interest rate and loan term can vary from 10 to 25 years.
- Disaster loans
These loans attract a low interest rate and can be offered to different types of businesses. Renters and homeowners can also qualify for an SBA disaster loan. Disaster loans are used to repair or replace items destroyed by declared natural disasters. These items may be personal property, real estate, business assets, machinery, inventory or equipment. There are four main types of disaster loans available which include:
- Home and personal property
- Business physical disaster
- Economic injury disaster loans
- Military reservists economic injury loans
- General small business loans
The loan term and eligibility depends on the circumstance and the type of disaster loan you request for. If your business is insured, it is important to include this in the loan to know the total amount that the insurance company will pay before coming up with a relevant loan amount.
Is your business eligible for an SBA loan?
Different SBA loans have their own small business loan requirements, which is important that you first talk to your SBA lender about your needs before applying for the loan. Most lenders will also consider credit factors like equity investment, business cash flow and collateral when approving the loan.
Getting an SBA loan
You can start by checking the loan application checklist on the SBA website. Some of the required documents include your business records and tax returns. Other information and documents that the lender will need include;
- Statement of personal history
- SBA’s borrower information form
- Personal income tax returns for the past 3 years
- Loan application history
You can then find names of approved lenders from your SBA district office. SBA express is a financing program available that can have your loan approved in as soon as 36 hours. If you have a good credit score and your business is in shape, the approval process will be shorter.
Advantages of SBA loans
The benefits of SBA loans manifests in different ways;
- How expensive the loan is
- What you want to use the loan for
- How you will repay the loan
All these will entirely depend on your business growth. It is, however, important to note that not every small business loan is a perfect match for your business, and this also includes SBA loans. There are business needs that will require you to get a loan faster than SBA loans can allow, and other loans do not have long paperwork processes involved in SBA loans. In this case, alternative loan options can be best for you. However, there are quite a number of benefits that come with SBA loans. The low-interest rates incurred is what makes the loan popular among many business owners. Compared to other loan types, SBA loans attract a relatively lower rate. The rates are also fixed, which comes as a relief for business owners. Having your loan approved in a financial institution for borrowers with poor credit history can be a nightmare, which puts such borrowers in a tough place. But since the government guarantees 80% of the total amount borrowed in SBA loans, it is also a reliable source of accessing business funds. Another benefit of SBA loans is that they have flexible repayment terms which allow you to cater for business expenses while repaying the loan.
Whether you need money to start a business, purchase business equipment or for working capital, there are plenty of loan options available. Getting a business loan from SBA is among the most convenient ways to finance a business. The loans do not only attract a low-interest rate but also comes with convenient terms and conditions. There are several approved lenders who provide different types of business loans. For the loan to be productive, it is important that you first analyze your business before determining which loan option best suits your business needs.