Starting a Business? Here’s What You Need to Know About Business Loans from the SBA

The US Small Business Administration (SBA), currently reports that there are over 30 million small business companies doing business in America today. Small businesses accounted for over 60 percent of all the new jobs created last year. Luckily, there are plenty of financing resources to help these companies boost their bottom line.

Are you thinking of starting your own small business? If so, then this article is for you! Check out our helpful guide on SBA loan programs. These loan programs are here to help your entrepreneurial dreams come true!

Small Business Defined

A “small business” is defined as an independently owned company that has a limited amount of revenue and employees, depending on its industry. Most small business enterprises include partnerships or corporations.

The SBA considers a company a “small business” if it has 250 employees or less. “Small businesses” also report no more than $750,000 in annual revenues.

The “small business” designation will vary based on what industry your company currently works in. Check the US Census Bureau industry code to see what criteria you must meet to fit the definition of “small business” in your chosen industry.

SBA Loan Programs

An SBA Loan is a long-term, low-interest advance to a small business from the US Small Business Administration (SBA.) The SBA is a governmental agency that works with pre-approved lenders to provide financing small businesses.

The SBA doesn’t directly loan money to small businesses. Instead, they develop guidelines for micro-lenders and other banks to provide loans to these small companies. The SBA ensures that the loans will be repaid which ultimately reduces the risks to these lending institutions..

You can find out more on this blog on the many circumstances or other situations a small business can find itself when negotiating an SBA loan.

History of the SBA

The SBA was created in 1953 by the US federal government. The SBA is charged with helping, advising and protecting small business interests. This 1953 law also created requirements that guarantee that small businesses would receive a fair share of government contracts and surplus property.

By 1954, the SBA generated new loan options to assist small businesses that were victims of natural disasters. By 1958, the Small Business Investment Company (SBIC) program was established to offer investment funds to smaller, venture capital investment enterprises. The SBIC program also began to help small investment firms with management assistance.

The SBA Today

Today, the SBA offers a wide array of customized financing tools to promote small companies. Examples of these programs include loans specifically for minority, veteran or women-owned businesses. The SBA also offers assistance to any small business that operates deals with international trade.

SBA Loan Products

There are several types of SBA loans that small enterprises can leverage to grow their business. These tools include:

CDC/504 Loan Program

The Certified Development Company (CDC) or 504 loan program is a long-term loan designed to generate economic development within a community. The CDC/504 program offers fixed rate, long term loans for major investments in machinery or real estate. Small enterprises can also use 504 financing to renovate or buy buildings.

SBA 504 loans are awarded for $5.5 million or less. The SBA’s guarantee for a 504 loan is approximately 40 percent, with the commercial borrower or lender funding the balance. These loans have a 10-20 year maturity period.

7(a) Loan Program

The SBA 7(a) loan program can help pay for many business start-up essentials. These essentials might include purchasing equipment or delivery vehicles. A 7(a) loan can also help create a revolving fund that companies can draw from throughout their fiscal year.

A 7(a) loan can be awarded for $2 million or lower per small business. The SBA can guarantee a 7(a) loan for approximately 75 percent or no higher than $1.5 million.

Microloan Program

The Microloan program is a customized financing tool that helps companies borrow smaller, “micro-level” amounts to pay for everyday business expenses. Microloans are topped at $350,000 per individual company.

Some non-profit organizations, like food banks, can apply for a microloan to help with start-up expenses. The average microloan amount usually totals around $13,000.

SBA Loan Qualifications

SBA loan requirements will differ based on which individual loan your small business applies for. SBA loan requirements will also differ between each lender. Some of the basic criteria that do apply to all SBA loans include the following:

  • Your business is officially registered as a for-profit enterprise;
  • Your business fits within one of the SBA’s small business industry definitions;
  • Your business is based and operates inside the US;
  • You have invested your own money and time to the business;
  • You have been in operation for an adequate amount of time;
  • You have exceptional personal credit and a FICO score at least over 650;
  • Your business is able to show dependable revenues and profitability;
  • You have a satisfactory debt service coverage ratio between your cash and outstanding debts;
  • You have a 3-5 year business plan that includes your estimated three to five-year financial projections. Your business plan should also include language that shows that you understand your industry and the other competitors in this market; and
  • You have assets or other collateral that you can treat as security to qualify for individual loans.

Next steps

Ready to make those small business dreams come true? If so, it’s best to start your research today to see which SBA loan programs will work best for you.

What is your loan for? How much will you need? Answer these questions ahead of time to find the right financing tools that meet your companies current and future needs.

Start pulling your records together to satisfy those minimum SBA loan requirements. Identify the assets that you can use to secure your loan. Request your credit scores so that you show lenders that you are not a credit risk.

Don’t forget to check our website for more helpful information on other commercial loans that can help get your company funded fast. For more helpful information on business loans, be sure to check out our website. We’re here to help you make sure your business is a successful one.