United States
Updated: August 31st, 2023
A Small Business Administration (SBA) loan, which is provided by banks and other lenders, and partially guaranteed by the government, is a popular source of funding for small businesses in the United States. The SBA is a government agency that works to serve and promote small business success across the country.
Finding startup or expansion funds for any small business is normally a difficult and arduous process. However, securing a small business administration loan can ease the stress of finding quick and agreeable funding terms for qualifying businesses. With the loan, business owners gain access to the necessary capital to carry out a variety of business objectives and operations, ultimately helping the company cover income gaps, expand production, hire new personnel, and other related tasks.
The SBA’s primary goal is to assist, counsel, and protect the best interests of small businesses. It also aims to uphold free competition, enabling entrepreneurship and diversification across industries.
While it is an autonomous federal agency, the SBA also actively collaborates to increase opportunities for small businesses across the federal government. Aside from working with private lenders, the body helps ensure that other federal agencies meet or exceed their contracting quotas for small businesses.
Small business administration loans provide funding to small businesses for a variety of purposes, including but not limited to setting up the business, buying equipment, hiring workers, buying real estate, and expanding operations.
The SBA does not directly issue this funding; rather, a private lending partner like Funding Circle does. The SBA’s role is to provide a guarantee for the loan.
As a business owner, you can apply for a small business administration loan from one of the agency’s many programs. You cannot apply directly to the SBA; rather, an application is submitted through the lender, which then applies on your behalf to the SBA.
A business must meet the conditions required for the particular type of small business administration loan you’re applying for.
For lenders, the SBA provides partial or full guarantees. This means that if you default, the lender is paid by the SBA. However, the SBA normally requires an unconditional personal guarantee from all parties with a 20% or higher stake in the business. It may use these assets to pay the lender in case of default.
Although the U.S. has some of the biggest corporations in the world, small businesses make up more than 99% of employer firms. It wouldn’t be wrong to call small businesses the heartbeat of the U.S. economy.
According to an SBA report, small businesses are responsible for 44% of the economic activity in the country. These businesses also create two-thirds of all jobs.
Reasons such as these, are why supporting small, local businesses and allowing them to grow is highly crucial for the country’s overall economic strength. Both the SBA and the lenders the SBA work with, like Funding Circle, understand the critical of small mom-and-pop shops.
Many banks and lenders prefer providing small business administration loans because these are at least partially backed by the government. Because the SBA bears some of the risk, lenders readily offer loans to qualifying small businesses.
This dynamic results in many benefits for small businesses. With the SBA’s guarantee, lenders can offer flexible terms and low-interest rates.
The SBA offers small businesses a wide range of loan programs to meet their specific needs. A small business within any life stage can seek funding to address its needs and goals.
There are four main program types:
What is this loan program?
The SBA 7(a) Loan Program is the agency’s most popular business loan program. Private lenders fund these loans, and the SBA offers a partial guarantee. In the last fiscal year, this loan program provided nearly 52,000 loans.
There are different types of loans within the program, including standard 7(a) loans, small 7(a) loans, express loans, and several others.
How does it work?
The lender applies for the SBA 7(a) loan on behalf of the small business. The term and rate depend on the amount and purpose of the loan. For example, the term can be as long as 25 years for real estate purchases.
The rate is dependent on the prime rate that banks also use.
Whom is it intended to serve, and for what purpose?
SBA 7(a) loans are for small businesses based in the U.S. These loans are intended for business expansion, equipment purchases, working capital, among other ventures.
What are the specific funding options?
The funding options are based on the loan subtype that you’re applying for. The funding amount can be up to $5 million. The SBA’s maximum guarantee also varies by the type of loan, ranging between 50% and 90%.
What loan requirements exist?
These requirements apply to all types of SBA 7(a) loans:
Additional requirements specific to Funding Circle:
What is this loan program?
The SBA Microloans Program is a flexible loan program providing small loans, particularly to startups. In this program, entrepreneurs and businesses, both new and existing, can borrow up to $50,000.
How does it work?
Affiliated lenders fund the SBA microloans. The application goes through an intermediary, which then files the application. The SBA has many approved intermediaries, which are normally lenders, across the country.
Whom is it intended to serve, and for what purpose?
SBA microloans are for new and existing small businesses, and they’re designed to help them find working capital with low-interest rates. This microloan, which is typically significantly lower than the max limit, can also be used to purchase equipment or inventory.
What are the specific funding options?
You can borrow up to $50,000 with an interest rate ranging from 6% to 9%. The loan term can be up to seven years. Up to a 3% fee is charged by the lender.
What loan requirements exist?
The requirements may vary by lender, but generally, for-profit small businesses and some nonprofit child care centers can apply for this loan by supplying the relevant documents, such as tax returns, their business registration, a proposal, and pay stubs.
What is this loan program?
The SBA 504 Loan Program is a long-term loan program with lower interest rates and down payments. This loan program is for small businesses purchasing long-term assets.
How does it work?
The 504 Loan Program has stringent requirements. Banks and certified development companies provide financing under the program. The application goes through the lender, so you must first find a certified development company.
This certified development company can provide 40% of the funding, and the bank can provide 50%. The business owner also needs to fund at least 10%.
Whom is it intended to serve, and for what purpose?
This loan program is for small businesses and can be used to purchase real estate, heavy machinery, or equipment that the company plans on using for the long term.
What are the specific funding options?
The loan amount can be up to $5.5 million with term options of 10, 20, or 25 years. Interest rates are tied to treasury rates (five- and 10-year rates).
What loan requirements exist?
The main requirements for SBA 504 loans are that the business must operate in the U.S. and that it must be a for-profit business. The total net worth must be lower than $15 million, and the per year average net income must be lower than $5 million (after federal taxes) for the two years preceding the application submission.
What is this loan program?
The SBA Disaster Loan Program provides loans to small businesses that have been impacted by a natural disaster or pandemic.
How does it work?
There are different types of loans under this program. The applications go through SBA-approved lenders participating in the program.
Whom is it intended to serve, and for what purpose?
This loan is intended to help businesses keep running even after a disaster. It can help pay for repair expenses in case of physical damage. It can also help cover operating costs, especially employee paychecks.
What are the specific funding options?
The funding options vary by loan type, but the funding can be up to $2 million. The term can range up to 30 years. The rate is typically low, but it’s based on several factors, including whether you already have another line of credit.
What loan requirements exist?
Aside from the general small-business loan conditions, the business must be located in a natural disaster area. In some cases, the U.S. president must declare the area in which the business operates to be a disaster area.
You can secure a small business administration loan with the help of Funding Circle. We can help you assess your small business needs and determine how an SBA loan can help. By ensuring that your application meets all the requirements, we can make the process swift and convenient while increasing your chances of approval. At Funding Circle, you can find favorable terms and conditions for SBA loans that allow you to grow your business and empower your community. Ready to get started securing your SBA loan? Fill out our application today!
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