SBA stands for Small Business Administration. It is a government body that helps small businesses to get funding as they approve their loans. Hence, SBA loans stand for those loans that you will get from lenders. This is a program that small businesses use when they look for lenders that offers loans for small-sized businesses.
In this article, you will learn about SBA loans in general and their importance. Apart from that, you will also get an idea of the benefits of taking an SBA loan for a small business. Furthermore, we will also discuss how can you get SBA loans for your small business.
What Are SBA Loans, And Why Are They Important?
According to the SBA.gov website,
“The U.S. Small Business Administration helps small businesses get funding by setting guidelines for loans and reducing lender risk. These SBA-backed loans make it easier for small businesses to get the funding they need.”
Since lenders get this guarantee from a government agency like SBA, they are able to offer better and flexible payment terms to the borrower, along with a low-interest rate. This, in turn, helps the borrower or the small business that cares a lot about the rate of interest associated with a loan.
In fact, the SBA PPP loan funding helped many businesses in employing their workforce during the pandemic. However, it ended on 31st May 2021. Despite that,
“existing borrowers may be eligible for PPP loan forgiveness.”
Major Benefits Of SBA Loans
SBA Loans are some of the most common types of loans that small businesses avail from lenders. Since these loans are designed to help small businesses, they really offer a great number of benefits. The following are the major benefits of SBA Loans that you will need to know:
1. Really Helpful For Small Businesses
According to SBA.gov, with the help of SBA Loans, you can now
“protect yourself from predatory lenders by looking for warning signs. Some lenders impose unfair and abusive terms on borrowers through deception and coercion. Watch out for interest rates that are significantly higher than competitors’ rates or fees that are more than five percent of the loan value. Make sure the lender discloses the annual percentage rate and full payment schedule.”
The loan rates and fees in SBA Loans are close to non-guaranteed loans and are mostly low. Apart from that, some of the SBA Loans offer external support, which helps you to run your business efficiently. Furthermore, the down payments are low, the overhead requirements are flexible, and in some special cases, you will not need to keep something as collateral.
2. You Can Use SBA Loans For A Wide Range Of Expenses
SBA Loans are created in such a way that you can use those loans for a wide range of expenses as per the need of your business. Apart from that, SBA guarantees
“A lender should never ask you to lie on paperwork or leave signature boxes blank. Don’t get pressured into taking a loan. Survey competing offers and consider speaking with a financial planner, accountant, or attorney before signing for your next loan.
3. SBA Loans Are Secure For Borrowers
The best part of SBA Loans is that the federal government guarantees a certain amount to the lender of the loan. This helps in securing the lender and reduces the risk of the payback of the loan. However, in some cases, as a borrower, if you fail to pay back your loan, the lender has the right to seize your assets.
4. Lenders Get Secure Through SBA Loans
Since SBA Loans are guaranteed by the federal government of the US, hence more lenders feel secure in financing these loans to small businesses. Basically, due to the guarantee of payback of a certain amount, lenders feel secure, and they, too, lower the qualification criteria of borrowing.
Different Types Of SBA Loans
There are different types of SBA loans that you can avail yourself or for your small business, depending on your need. In this section, we are basically talking about the popular SBA Loans and the ones that are specifically focused on helping small businesses. Here are the most popular types of SBA Loans:
1. SBA 7(a) Loans
This is the most popular and common type of loan for small businesses. Here, if you are eligible, you can get up to $30,000 to $5 million. However, you will need to have good financing and credit history.
2. SBA 504 Loans
If small businesses qualify for 504 Loans, they can get up to $5 million. In most cases, as the owner of the business, you will need to guarantee at least 20% of the loan.
3. SBA 8(a) Business Development Loans
This is helpful for small business owners that are disadvantaged, as the federal government tries to give out 5% of all federal contracting dollars to them. However, the small business must be at least owner 51% by a US citizen entrepreneur.
4. SBA Microloans
These SBA Loans are made for women, minorities, veterans, and low-income entrepreneurs. These loans range from $500 to $50,00 based on the qualification of the individual or business.
What Can You Use SBA Disaster Loans For?
According to SBA’s disaster assistance forum,
“SBA disaster loans can be used to repair or replace the following items damaged or destroyed in a declared disaster: real estate, personal property, machinery and equipment, and inventory and business assets.”
One of the best things about SBA GOV Loans is that they offer disaster loans too, and that too to businesses of all sizes. Apart from that, these loans are also helpful to all profit and non-profit organizations, homeowners, and renters. Furthermore, SBA Loans for women are also getting popular.
In terms of the type of disaster loans,
“SBA provides low-interest, long-term loans for physical and economic damage caused by a declared disaster. They include home and personal property, business and economic injury loans.”
SBA Loans are a great choice for small businesses. Furthermore, these loans are also helpful for lenders since the SBA takes some of the risks of the lenders by giving them a guarantee of some of the portion of the amount that is lent to the borrower.
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