6 Benefits of SBA Loans that Every Business Owner Should Know
Starting, running, or expanding your small business is never a simple process but it can be exceedingly rewarding. The US Small Business Administration, with offices and partners all over the country, is a great resource to access information on best practices, mentors, and even funding. Here are some key facts about how SBA loans work before you begin applying.
Work with Commercial Lenders
SBA-backed loans are just that – backed by the government, rather than loaned out by the agency. The SBA works with commercial lenders to help identify responsible loan applicants, thereby decreasing the risk taken by the lending partner.
Give Better Terms
SBA loans typically have lower interest rates, lower down payment requirements, and longer repayment terms than a regular business loan. You are unlikely to find any better terms through any other private lending program.
Offer Different Types of Loans
The SBA offers different types of loans and the options change based on how much you are looking to borrow and what you are going to use the money for. The agency also runs special programs after natural disasters, as well as pilot programs to test out new loan options. Be sure to reach out to a local SBA representative to find out what options are available when you are looking for funding.
Require a Business Plan
To qualify for an SBA-backed loan, you will need to have a business plan. Most likely, you will not need a full-blown MBA-style plan, but something more along the lines of projections on your next couple of years with, and without, the loan. A responsible business owner would have this information before considering taking out a loan anyway.
Take Longer to Process
This is the only true downside to SBA loans. Because you are effectively applying for the loan twice, first to the SBA, and then again with the lending institution, the process takes a little longer. But once the SBA has approved your application, the process at the bank will go quicker.
Have Minimum Requirements
The SBA will look to be sure you are personally invested in your business and are legally registered in the US. Other criteria that will help your application include have been in business for two years, have apx. $100,000 in annual revenue, and your business has a credit score higher than 620.
SBA-backed loans are an excellent option for small businesses. Be sure to find your local SBA office and learn about your options before considering a more traditional route.