Tips for Considering an SBA Loan

If you’re a small business owner, chances are you have heard of or thought about applying for an SBA loan. As with any other type of loan, it’s important to do research and to know exactly what you’re getting in to before submitting that application. Here are some things to consider when deciding if an SBA loan is right for your business.

Know What the SBA Actually Does

The SBA, or Small Business Administration, is an independent government agency founded to help small businesses. It’s a common misconception that the SBA is a lender when in fact the organization does not issue any loans itself. Instead, it guarantees loans given to approved applicants, lowering the risk for commercial lenders. The SBA can guarantee as much as 85 percent of the loan proceeds.

Check Out the Benefits of an SBA Loan

You may have heard that SBA loans are a lot of paperwork and take a long time to process, but the diligence and patience put forth are not without reward. Once approved, you can expect a lower down payment, less collateral required and a longer amortization, or pay-back, period than with bank loans not backed by the SBA. On top of that, an SBA loan can ease the minds of lenders when financing riskier ventures such as a newer business.

Understand the Different Types of SBA Loans

SBA loans are a category of loans. The six types of SBA loans are 7(a) loans, community development corporation (CDC)/504 loans, CAPLines, export loans, microloans, and disaster loans. The 7(a) loan is the most common, but each has its own requirements and benefits, suiting various types of financial situations.

Be Prepared Before You Apply

Finally, the process of applying for an SBA loan can belong. It can typically take 90 days to process and application, with several trips to your banker during the process. Once you’ve decided what you’re applying for and how much you need, find gather all of the required documents before you begin the application process. It also wouldn’t hurt to know your credit score before you apply as many of the loans have a minimum requirement.

SBA Loans are made for small businesses – it says so right in the name! While the process applying for one of these loans can seem daunting, it’s really a matter of doing research and learning what you can before you get started. If you’re thinking about applying for an SBA loan be sure to understand how they work, what the benefits are, what the different types of loans back by the SBA are, and have all of your documentation ready to go before you apply.

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