How SBA Loans Work
When you’re a small business owner thinking about borrowing money, an SBA loan will likely be one of the first types of loans you’ll hear about. They come with low rates and can be used for all sorts of things.
With an SBA loan, your business won’t get a loan directly from the SBA. Instead, it offers SBA loan guarantees of up to 85% of the loan value for several different funding programs. SBA-approved lenders – often financial institutions such as banks, offer these loans to businesses. Their risk gets reduced because of the SBA loan guarantee. So if a borrower doesn’t pay back the loan as agreed, the SBA steps in to compensate the lender.
What is the SBA?
SBA stands for the Small Business Administration, a US federal government agency. They offer all sorts of small business help, but they’re most famous for their business loan help. The SBA helps small business owners obtain loans from banks and other credit organizations. While many people believe that the SBA provides the money for those loans, the truth is that the SBA simply guarantees those loans up to 85%. In other words, if the borrower defaults on the business loan, then the SBA pays 85% of that loan back to the bank. This way, banks can take on “riskier” loan seekers. Still, as you’ve noticed from reading this page, obtaining an SBA loan requires a lot of time and attention.
Where UCS Comes In
Now, United Capital Source works differently than the banks. We have a partnership with SBA lenders, creating a “marketplace” atmosphere. As a result, our SBA loans are often much easier to qualify for than they are through other sources.
Are SBA Loans Hard to Get?
Like we said, banks have some pretty strict requirements. They want to loan money to borrowers who come with the least amount of risk. If the SBA hadn’t gotten involved, banks would only loan money to a select few people who meet their very specific requirements.
SBA loans are harder to get than your average loan. With long repayment terms, and low interest rates (and of course, having the government back you in case you can’t make repayment), there are plenty of business owners who want this option, which means a lot of competition. The application process is longer and more rigorous than others, and the eligibility requirements are more extensive than other loan options as well. Business owners might even mold their product to fit the necessary specifications, just to get this loan.
All in all, it’s important to know everything it takes to get an SBA loan. It’s never too early to speak with United Capital Source to further discuss if an SBA loan is the right fit for you.
What Can You Use SBA Loans For?
Why do you want to borrow money for your business? Unlike some other types of business credit,when it comes to using your loan money, some SBA loan programs offer flexibility. You could use an SBA loan for a variety of purposes or projects. Talk to your lender about any restrictions for the SBA program you apply to.
Depending on your program, you could borrow money to:
- Open a second location
- Hire employees
- Buy machinery/equipment
- Refinance a current loan
- Buy real estate
SBA Loan Basics
When a lender offers a borrower an SBA loan, part of that loan gets guaranteed by the federal government. This means that federal funds could be used to pay back the lender part of the loan if the borrower doesn’t make the payments. So the lender has the assurance or protection of knowing that they’ll get most of their money back, one way or another.
This guarantee and the reduced risk makes lending money to small businesses more attractive to lenders.
- The loan amounts range from $50K to $10M
- Loan terms run from 3 to 25 years
- Interest rates could be fixed or variable depending on the program
- Getting approved for your SBA loan takes about 3 weeks or more
- Four current loan programs including 7(a) loans, 504 loans, microloans, and disaster loans