Everything You Need to Know About SBA Loans

Too often, small business owners encounter challenges in securing business loans. This is because the financial institutions, especially the traditional banks, consider collateral and other assets that the small business owns. Luckily, the small business administration provides viable solutions to help young entrepreneurs access loans. Basically, SBA supports American businesses by encouraging credit unions and banks to offer favorable lending programs. The administration urges the institutions to lower the interest rates and revise the repayment terms to attract more business people. Keep reading to know more about SBA loans.

What Is an SBA Loan?

An SBA loan is a program drafted in an agreement between the SBA agencies and lenders. The loans are specially designed for small businesses to help them acquire finances at favorable terms. Other than providing capital for small companies, SBA offers an intensive program to assist businesses that have been affected by natural disasters. However, similarly to the different types of lending, SBA loans require several qualifications and documentation from the applicant.

Qualification Requirements

  • Years in business – your business should have been in operation for a minimum of 3 years. For new startups, you will have to share your business idea with an SBA expert who will assess whether you qualify for the loan or not.
  • The credit score – SBA program requires the applicant to have a credit score of more than 620.
  • Annual returns – Your business should have a minimum of $100,000 yearly profits to qualify for SBA loans.

The Three Main SBA Programs

SBA offers three main loan programs. They include:

  • 7(a) loan program – the program provides a maximum of $5 million with a repayment period of 7 to 25 years. You can use this type of loan for almost everything. For example, debt refinancing, equipment and inventory purchase, real estate deals, and much more.
  • 504 loan programs – The 504 program is the cheapest and the most popular loan program. However, applicants can only use it to purchase large fixed assets such as real estate and machinery. It has a repayment period of 10 to 20 years and a maximum loan amount of $5 million.
  • Microloan program – Microloans are usually smaller, and the maximum amount you can get is $50,000. The interest rates vary between 8 to 13%, and the maximum repayment period is six years.

Government-backed loans are hugely helpful to all types of businesses. They have a straight forward application process, low interests, and the repayment terms are extended. If you need any financing for your business, review the requirements thoroughly, and apply for the best SBA program, which is the most suitable for your needs.

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