According to the SBA, small businesses are the backbone of the economy in the United States. In 2020, there were more than 31.7 million small businesses registered in the USA, and those businesses employed more than 60 million employees. The SBA is the agency that helps these small businesses get the funding they need. They do not lend money, but they do help secure the money for these businesses.
How Does an SBA Loan Work?
These are a lot like conventional business loans: the business owner applies and if approved, pays the funds back in installments with interest. In addition to the interest, SBA loans have several other fees attached to them.
SBA Loan Programs Explained
SBA loan programs are specifically for those small businesses that don’t qualify for other types of financing. There are four main programs:
7(a) Loan Program
CDC/504 Loan Program
What Can SBA Funds be Used for?
Typically, SBA loans are used to purchase or improve real estate and/or equipment and can also be used for payroll expenses, inventory, working capital, or finance experts. The individual programs stipulate how funds can be used.
However, you cannot use SBA funds for floor plan financing, real estate development/investment, or lending money to individuals or other businesses. If a business is in the gambling industry, they are automatically disqualified.
Benefits of SBA Loans
There are several benefits with SBA loans:
Credit score requirements are lower
Usually have lower interest rates
Down payment is usually around 10%
Can be stretched out to 25 years
Owners work with local lenders to get funds
Disadvantages of SBA Loans
As with anything else, there are some disadvantages to SBA loans, which we will look at here:
Can take up to 90 days to process
Must be in operation for at least 2 years
Must have a solid business plan and demonstrate expertise in the industry
Personal guaranty required for all owners with a 20% or more stake
Guaranty fee charged for the part of the loan being guaranteed by the SBA
What You’ll Need
There are several documents that you will need to support your application:
Personal background/financial statements
Financial statements from business
P&L statements for three years
Projected financial statements
Resumes of team members
Overview/history of business
You’ll also want to answer these questions:
Why are you applying?
How will you use the funds?
What do you need to purchase and where are you getting it?
What other debt do you have and who are the creditors?
Who are your management team members?
If you need an SBA loan, contact the experts at Fortis Funding. We can expedite SBA loan requests to get you the financing you need.