When entrepreneurs start up a business, they require funding, and one option to consider is a loan guaranteed by the U.S. Small Business Administration. The SBA is not a lender, but instead it guarantees up to 85 percent of the loans that other banks or lenders provide. It also assists entrepreneurs and small businesses with informational resources and counseling. If you want to apply for SBA loans, here is some useful information to help you get started.
Types of SBA Loans
The SBA offers a variety of loan-types that depend upon the needs and qualifications of small businesses. SBA 7(a) loans are the most popular SBA loans; you can borrow up to $5 million, which can be used for working capital, equipment, refinancing debt, real estate, and other purposes. SBA 504 loans are typically used for the purchase of real estate or facilities. SBA disaster loans assist businesses in recovering from natural disasters or other emergencies. These loan types are usually provided to existing businesses, although startups can sometimes qualify for SBA 7(a) loans. The most accessible loans for funding startups are SBA microloans. These give you up to $50,000 for working capital, inventory, equipment, or other expenses such as marketing or legal fees.
How to Qualify for SBA Loans
For businesses to qualify for SBA funding, they must be U.S.-based, for-profit, at least partially funded by the owner, and unable to obtain financing by other means. Other requirements vary depending upon the loan type, the amount of the loan, your company’s credit rating, and the particular lender that is working with the SBA to offer the loan. Startups need to provide a comprehensive business plan along with appropriate leases, business licenses, financial statements, credit histories, and other documents.
Advantages of SBA Loans
Because SBA loans are backed by the government, you generally get better rates and terms than non-government backed traditional loans offer. Your down payment may also be lower. Additionally, you can benefit from the complementary financial and business educational resources that the SBA provides.
For more advice on SBA loans for startups, contact Northgate Capital Finance.