At a Glance
In addition to advice and services, the SBA (U.S. Small Business Administration) also creates guidelines for a class of business loans designed for entrepreneurs and growing companies. Part of each SBA loan is guaranteed by the Administration, even in the case of default: This lowers lender risk and increases the options available for small business loans.
Benefits & Drawbacks
-Both fixed rate and variable rate loans
-Financing via the SBA for up to 90%
-Loan term options through 25 years
-Application can be time-consuming
-Not everyone qualifies
-Like other business loans, collateral may be required
What SBA Loans are Available?
SBA 7(a): This loan is designed for large business decisions – acquiring a company, refinancing a mortgage, gathering funds for a new startup, equipping a new office, conducting a partner buyout, buying real estate, and so on. The scope of the 7(a) is quite large and can be applied to many business strategies, making this a particularly common choice among entrepreneurs.
SBA 504: This loan focuses only on real estate: Specifically, it covers purchasing property or construction projects.
SBA Express: This is a smaller class of loan (capped at $350,000), which are designed more for equipment, working capital, and other sudden business needs. These loans can be approved in less than 48 hours, and provide choices between variable and fixed. Under $25,000, and collateral isn't necessary. The SBA will guarantee 50 percent of this loan class.
During the application, you meet with an SBA-qualified lender and provide important financial information – a more comprehensive process than a typical consumer loan. Financial statements, tax returns, background and credit checks, and owner information may all be required (or a business plan for startups). Loanry's tools can help you find these loans and quickly get a checklist for necessary items.
The lender will study your financial information and decide whether or not to approve a loan – and what the terms of that loan should be. If they approve, the lender will provide a specific loan proposal with the necessary details. You can receive multiple proposals if you take the time to apply to more than one lender, which can be a smart idea in uncertain circumstances.
When you accept a proposal, the lender begins to carefully evaluate your risk. You will need to provide more detailed financial information at this stage, then wait until the lender makes a final approve/decline decision based on the agreed loan details.
After the final approval, any remaining loan terms are set (until this point, certain rates or other percentages may vary) and costs are calculated. Money exchanges hands, and the loan is completed. From beginning to end, the process typically takes around 30 to 60 days: Smaller, simpler loans tend to move more quickly.