What is an SBA Loan?
Since 1953 U.S. Small Business Administration has been helping small business owners get funding by guaranteeing up to 85% of loans issued by lenders. The SBA loan programs let you borrow money for nearly any business purpose—including adding to working capital, purchasing inventory or equipment, refinancing other debts, or buying real estate. If you want to geek out on the history of the SBA click here otherwise continue below and we will breakdown everything you need to know.
Who Qualifies for an SBA Loan?
The most important factor will be your credit score: SBA loans are for business owners with strong borrowing histories so if you have poor credit SBA becomes a challenge. There are ways to reduce the impact but poor or no credit history can be challenging. Be prepared, SBA loans require a lot of time, energy, attention, and documentation. There is a lot of work involved in a SBA loan.
You'll need to plan ahead because SBA does processing takes some time before you receive the funding. But if you are prepared, know your numbers and have a good track record, SBA loan programs can be power vehicles for growth and prosperity.
How to Apply
There are many large and local banks that offer SBA loans but not all banks are going to have the same criteria for lending. We know what you are thinking, if the government is backing 85% of the loan why would the banks not lend to anyone. We wish it was that easy. The reality is that yes risk is much lower for the lender but the lender must show proof of rigor in the lending process otherwise they will lose their SBA lending privileges. For this reason you will find that lenders typically have extensive loan applications and will look very closely at your personal and business financial details. You will also have an SBA loan application that the government mandates. This application typically take a few weeks to process.
We have originated a lot of SBA loans over the past 10 years and we can strip a lot of the time and effort out the process but there are some things that we can't avoid when it comes to application processing.
How Do SBA Loans Work?
Almost every small business owner wants to know how to qualify for an SBA loan. It is true that SBA is one of the lowest-cost products out there but the impression is that it is impossible to get approved.
At IBC, we've helped thousands of small business owners successfully secure SBA loans. With all that experience—and data—under our belt, we're confident we can give you the information you need to apply for an SBA loan.
By understanding how the product works and what exactly the eligibility requirements are, you'll know if an SBA loan is the right product for your business.
How to Choose the Right SBA Loan Program
First of all we do not suggest that you "pick" a SBA loan program until you have spoken to one of the IBC Lending Consultants to make sure SBA is the best option for your situation. But once it is determined that SBA is the way to go, there are several government backed programs available but these three are the most prevalent.
Top 3 SBA Loan Programs:
1. The 7(a) Loan Program
2. The Microloan Program
3. The CDC/504 Loan Program
How do you know which SBA Loan Program is right for you?
1. The SBA 7(a) is the most popular program and it works best for most businesses with general financing needs—like expanding working capital, refinancing old debt, or renovating a location.
SBA 7(a) loan Details:
Up to $5M in loan amount
Repayment terms of up to 7 years (for working capital loans) or up to 25 years (for commercial real estate loans)
For general business financing needs
2. The CDC/504 loan is a great program specifically designed to purchase major fixed assets—mostly large equipment and commercial real estate.
SBA CDC/504 loan Details:
Up to $5.5M in loan amount
Repayment terms of 10 or 20 years
For the purchase of major fixed assets
3. The SBA Microloan program. The SBA is a great source of funding for small or newer businesses in need of funds under $50K.
SBA microloans Details:
Up to $50K in loan amount
Repayment terms of up to 6 years
For starting or expanding a small or newer business
Each of these options is pretty clear and each comes with some heavy paperwork and detailed explanation of uses. If you’re unsure about which SBA loan makes sense, IBC can walk you through your options and help you decide which program is right for you. We have literally done this thousands of times.