Finance and business have so many abbreviations and jargon words. It can be hard to keep track of them. In your search for funding, you have probably encountered the term “SBA loan.” Terms such as these can be daunting and make it more difficult for you to weigh your options.
We’ll help you decipher the term SBA, teach you more about how you can secure the loan, and the many ways SBA loans could be a great funding option for your small business.
What is the SBA
Let’s start with, what is the SBA? The SBA is the Small Business Administration. It’s a government organization that provides all kinds of small business assistance, from business counseling to business loans. They also provide services such as:
- Creating business plans.
- Help with becoming a government contractor.
- Assistance with applying for a business license.
They are a hub for business knowledge and assistance.
What is an SBA Loan?
In simple terms, an SBA loan is a business loan that is partially protected (or guaranteed) by the SBA. The government backing means the financial risk is minimized for the lender. The reduction of risk helps small businesses that might not otherwise be eligible access needed funds to grow and succeed.
The SBA doesn’t directly lend money to businesses. Rather, it sets the guidelines for the financial institution it partners with to follow.
SBA Loan Eligibility Requirements
One of the great things about SBA loans is that most businesses are eligible to apply for one. Unlike other funding and loan options, you will not have to meet a long list of requirements to be eligible.
Most businesses are eligible for financial support from the SBA; however, there are still some that are not. To be eligible, your business must:
- Operate for profit.
- Be conducting business within the U.S. or one of its territories.
- Have owner equity to invest.
- Use alternative financial resources, including personal assets, before seeking financial assistance.
4 Pros of Taking Out an SBA Loan
SBA loans are an excellent funding option for many small businesses. Some of the benefits include low-interest rates, a variety of options, flexibility to use with new and established companies, and of course, government backing.
1. SBA Loans Have Lower Interest Rates
If you’ve ever taken out a business loan, you know that commercial loan rates can be shockingly high. High rates to pay down loans and grow business.
By contrast, SBA loans offer a significantly lower rate than commercial business loans. Some loan rates even drop down into the single digits! This makes it much easier to secure your financing and makes repayments more manageable.
2. Different Types of SBA Loan Options
The SBA offers various loan types. Their primary categories include 7(a), microloans, disaster loans, and CDC/504.
Each loan option is issued for a specific use. This allows you the opportunity to apply for the loan type that best represents the funding you need. The 7(a) loan is the most popular, and is likely to cover your needs. They are intended for working capital, expanding your business, or purchasing equipment and it is possible to borrow up to $5 million.
3. SBA Loans are for Both Established and New Businesses
It doesn’t matter whether you have been operating for 10 years or 2. All businesses can take advantage of the loans backed by the SBA.
No matter what size your business is, if you have dreams for growth and want to expand, an SBA loan can help you get there.
4. SBA Loans Are Government-Backed
The most significant advantage of an SBA loan is that it is government-backed. The SBA backs the loan and will guarantee up to 85% of the loan’s value, taking some of the risks out of lending for financial institutions.
This means businesses that might normally find it more difficult to access financing will have a greater opportunity to secure a loan as there is less risk involved for the lender. Some lenders will reduce their qualification criteria because they are less concerned about a loan default as some of the loan is guaranteed by the government.
SBA Loan Success Stories with Ivanhoe Capital Advisors
We’re proud to say we’ve had plenty of success stories with SBA loans. One example is a residential painting business in Wisconsin. The owner had no experience with painting and hadn’t owned a business before. We were able to get this client an SBA loan for $395,000, which allowed them to purchase the company and realize their dream of becoming a business owner.
Another success story is of a client in Florida who wanted to purchase a maid service. They had very little collateral, which meant other loans were out of the question. That wasn’t the case with an SBA loan though. In fact, they were pre-approved within 3 days!
SBA loans are a fantastic option for small businesses. They can make securing finance much more straightforward than it would be if you were exploring other loan options. Here at Ivanhoe Capital Advisors, we have helped many small businesses secure funding through an SBA loan.