What is an SBA Loan?
SBA loans are funding programs for business owners guaranteed by the Small Business Administration, which is a federal government agency. While the SBA itself doesn’t distribute small business loans, it provides guidelines for partner lenders, and offers a guarantee of 85% for loans up to $150,000 and 75% for those over $150,000, reducing the risk for banks and other loan providers. In turn, these lenders can provide loan programs with low down payments and reasonable interest rates.
SBA Loan Types
SBA loan amounts typically range from $25,000 all the way to $5 Million, payment timelines vary from 5 to 25 years, and most interest rates start at 7.75%. An SBA loan may be a good option for your business if you’re looking for working capital, debt refinance, equipment acquisition, purchase real estate, , or to change ownership. There are several loan programs available through the Small Business Administration, including:
- 7(a) Loan Program: The original SBA loan, this program funds everything from working capital to fixed assets.
- 504 Loan Program: Helps small business owners purchase commercial property.
- SBA Microloans: Provides funding up to $50,000 for startups and smaller business expenses.
- SBA Disaster Loans: Assists businesses affected by natural disasters, offering loans up to $2 Million.
Do I Qualify for an SBA Loan?
Different lenders guaranteed by the SBA may have specialized requirements for their loans, ranging from industry types to business plan specifications. Generally, the Small Business Administration requires all loan seekers to meet the following requirements:
- The business must be owned and operate in the United States.
- The business must be a registered for-profit business.
- The business must meet size standards for small businesses.
- The owner must have invested their own time and money into the business, also referred to as invested equity.
- The owner must have applied to an exhaustive number of private loan options and been denied.
Most loans through the SBA will require the funds to be used in a specific manner, laid out in the loan terms. Some SBA loan programs, like the 7(a) loan program, also have requirements regarding the business’s credit score and demand a down payment and/or collateral. Before submitting your application for any long term loan, double check to be sure that your business qualifies.
How to Apply for an SBA Loan
Every SBA loan application is a bit different, depending on the lender and the purpose of the loan. Most include extensive paperwork and require additional documents pertaining to your business. Here’s what you should have on hand to get started with your application:
- Personal and business tax returns (we recommend at least the last 2 years if possible).
- Profit and loss statements.
- Your driver’s license or federally recognized ID.
- Your Federal Employer Identification Number.
- Bank statements.
- Financial balance sheets.
- Business license or certificate.
- Current debt statements.
- Your lease or mortgage terms, if applicable.
- Your latest business credit report.
- A fully developed business plan, including financial growth plans. This is the most important piece of the loan puzzle. Make sure your plan is well thought-out, and have an advisor or other business owners look it over before submitting.
Why do you need all these documents? Simply put, it’s because you are trying to prove to the SBA and to your lender that your business is stable, reliable, and able to pay them back. Just because SBA loans are the most widely available to small business owners, doesn’t mean that you can’t be denied. The more you can show that your business is growing, the better chance you have of landing a loan with great terms and low interest.
While You Wait: Short Term Cash Flow
The SBA loan application process can take up to several weeks or even months to complete, so what should you do if you need a loan right now? Many business owners use their credit cards to get quick cash flow, but it’s important to remember that card balances come with extremely high interest rates that may prove difficult to pay back.
At Evolution Capital Group, we understand that you may not be able to wait for your SBA loan approval. That’s why we offer different funding options known as the bridge loans concept. Funding based on revenue rather than traditional loan requirements, and allow business owners to manage their funds with more flexibility. Additionally, the approval process for merchant cash advances is among the fastest timelines available, making it easy to get the capital you need to grow your business.
The Bottom Line
SBA loans are an excellent choice for any small business that needs an infusion of capital. Whether you’re looking to buy property, invest in long term assets, or expand your business with working capital, the Small Business Administration can help you get the funding you need through top-tier lending partners like Evolution Capital Group. For more information on how we can support your business growth, fill out our online contact form and we’ll get back to you as soon as possible.