SBA Loan Basics

If you run a small business, then you no doubt have looked at different financing options. If this is the case for you, then you have heard of SBA loans. This is backed by the U.S Small Business Administration. If you don’t qualify for traditional or conventional loans, then this might be the option that suits your company. Here are the SBA loan basics that can help you decide whether this type of financing is right for you.

What Is an SBA Loan?

These loans are designed for people who have limited cash flow, who have a short business history, or cannot obtain a conventional loan. For most small businesses, cash flow problems are common. Most businesses need some source of financing to keep the business alive.

How Does an SBA Loan Work?

It works through traditional lenders. The SBA does not make the loan itself. Instead, when you apply you go through a bank or other lender.  They guarantee a portion to take the risk off the lender. There are specific requirements that are used, but it tends to be easier for a small business to qualify. Most lenders are afraid to fund small businesses. There are a lot of risks. With SBA loans, the lender knows that if you default, the SBA will pay out a percentage so that they won’t take the hit.

What Type of Loans Are There?

If you’re looking into an SBA loan, there are two types that you’ll want to think about. First, there is the 7(a) loan. This is the most common one that small businesses choose. It includes a variety of loan programs and you can use it for anything involving your business. The second option is the 504 loan. This is best for real estate or equipment purchasing.

Some business owners may be more hesitant to go through the process. Since it isn’t a short application process, it might seem daunting at first. However, it’s important to note that the requirements aren’t as stringent as a traditional bank loan. You must follow the rules and regulations set forth by the SBA, but in general, these loans help small businesses in their times of need.

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