You decided to start your own small business and have begun doing research and where to start and what resources you have. One of the resources you discover is the Small Business Administration, or SBA. You then ask yourself what exactly this administration is and what they
do in order to help small businesses.
According to investopedia.com, the Small Business Administration or SBA is an autonomous U.S. government agency that was established in 1953 in order to bolster and promote the economy by giving small businesses the assistance they need.
The Small Business Administration (SBA) provides different services to small businesses. The largest service they provide is counseling in order to aid an individual trying to start and grow their business.
The different services they provide includes:
- Access to capital: This involves microlending which are small loans that are issued to people who would not otherwise be able to qualify for financing.
- Entrepreneurial development: This is driven by counseling services as well as low-cost training.
- Contracting: The government has about 23% of the government contracting dollars reserved for small businesses specifically and the SBA provides access to this.
- Advocacy: The SBA acts as an advocate for small businesses by reviewing legislation and protecting the interests for small business owners.
The SBA helps small businesses with the ability to get access to loans, loan guarantees, contracts, and other services. Just on their website, they provide a handful of different tools a small business owner may need to assist their business.
The SBA has one at least one office in every state in order to provide in-person help and counseling including business plan writing instruction, and help with small business loans. They provide competitive terms, meaning that the SBA-guaranteed loans usually have rates and fees that can be comparable to non-guaranteed loans. The agency also provides certain benefits like lower down payments, flexible overhead requirements, and some of the loan types do not require collateral.
What Kind of Loans does the SBA Provide?
As mentioned above, the SBA can provide access to loans and loan guarantees to small business owners. There a few types of both that they can provide to help you get what you need to start and run your small business.
The SBA does not provide grants or direct loans besides disaster relief loans. They do, however, provide guarantees against default pieces of business loans that have been extended by banks and other official lenders. The loan programs give the ability to make the repayment period longer for small businesses. The loans that are backed by the SBA -including the 504 Loan , also known as the Grow Loan – provides small businesses with the financing needed to buy some fixed assets they need in order to run their business, like real estate. The main loan program is the 7(a) loan, which allows a guaranteed maximum loan amount of $5 million.
There are also a handful of other SBA-guaranteed loan programs that include:
- Express loan: These loans are partially guaranteed by the SBA with expedited credit decisions, that can be offered within 24 to 36 hours. This type of loan, while providing a speedy response, can result in a higher interest rate compared to a typical SBA loan. Express loans are good for individuals who have strong credit, a well-established business, and only need about $350,00 or less in capital.
- CAPLine loan: This loan program allows small businesses the chance to acquire lines of credit, whether fixed or revolving, for meeting cyclical and short-term working capital needs. These loans are partially guaranteed by the SBA of up to 75% to 85% and must be fully collateralized by the borrowers assets. With this type of loan, you have a specific amount of time to pay it back and the interest rates (fixed or variable) are determined from prevailing rates and vary by the size of the loan. There are four (4) different loan programs that are under the CAPLine “umbrella” which include a contract loan, seasonal line of credit, builders line, and working capital line of credit.
- Disaster loan: The Small Business Administration proves these types of loans as low-interest to small businesses in order for them to repair or place items that were damaged or destroyed in a declared disaster. The items listed on sba.gov are real estate, personal property, machinery and equipment, and inventory and business assets.
- Export loan: These loans are loans guaranteed by the SBA that support American export activity. With these loans, they can guarantee up to 90% of the loan and all of the loan programs can be used in order to finance direct or indirect export activity. There are three (3) SBA export loan programs that include SBA Export Working Capital Program (EWCP), SBA Export Express Loan Program, and SBA International Trade Loan (ITL).
- Microloan: These types of loans are typically $50,000 or less and are some of the easiest SBA loans to get approved for. Due to the size, most banks are unwilling to provide these loans, so they’re a great type for business owners to get access to capital without going through a bank or credit union. Some programs for microloans are open to all small business owners, while others focus more on providing financing to low-income communities or countries and female entrepreneurs. These loans are typically done by giving the borrower the full amount from the lender and then they make repayments on the principal amount and any interest that was accrued. Microloans are usually provided by nonprofit organizations or government agencies, which means that there could potentially be restrictions on the use of the loan. These programs frequently offer competitive interest rates and terms, as well as fewer fees despite the possible restrictions.
Most of these types of loans can typically be provided by other financial institutions while the SBA acts as the guarantor. Small businesses can qualify for loans easier when those loans are guaranteed by the Small Business Administration. It also allows for the small business owner to have lower payments for a longer period of time.
The SBA does not lend money directly to small business owners.
Instead, it sets up guidelines for loans that are made by the lenders, community development organizations, and micro-lending institutions they work with.
The SBA helps reduce the risk for the lenders, giving them easier access to capital, and it helps make it much easier for small businesses to get the loans they need.
Are There any Eligibility Requirements?
Like most financing options, the Small Business Administration has certain eligibility requirements. According to SBA.gov, eligibility can change depending on what a business does to receive its income, the character of its ownership, and where the business actually operates.
Typically, the businesses need to meet size standards, have the ability to repay, and have a sound business purpose. Individuals with bad credit could potentially qualify for startup funding depending on other requirements.
Most loan types have their own eligibility requirements as well, but each lender should provide a list for your specific loan.
SBA.gov suggests a few things that can help businesses be eligible:
- Be a for-profit business: Be officially registered and operate legally.
- Do business in the United States: The physical location is in the U.S. and it operates in the U.S. or its territories.
- Have invested equity: The owner of the business has invested their own time and/or money into the small business.
- Exhaust financing options: The business has attempted to obtain funds from other financial lenders and were not able to receive them.
There are a handful of businesses that would not be accepted for approval no matter if they can meet the requirements. The Small Business Administration has provided a list of industries that they exclude which includes:
- Gambling
- Life Insurance
- Religious Teaching
- Primarily political and lobbying activities
- Oil wildcatting
- Mining
- Mortgage servicing
- Real estate development
- Bail bond
- Pawn or private clubs
As long as your business does not fall into any of these categories and are able to meet the eligibility requirements, it shouldn’t be difficult to find a lender that could help you get the working capital you need to help your small business flourish.
As you look and find a specific loan that fits for you and your small business, the lender you speak to should be able to provide a list of the requirements for that loan along with the general requirements an individual or small business needs to meet.
We Can Help You Get Started
We work with the best SBA Lenders in the country. Even if you have issues with your credit and have been turned down elsewhere. There are alternatives to getting the funds your business needs to start or to expand.
SBA loans are the best deals going with 6.25% – 8.50% rates*, loans up to $5 million with long repayment terms.
Our partner has streamlined the application process so you only complete one application when you apply for an SBA loan or opt in for a Bank Term option through our bank marketplace.
