Looking for a Business Loan? Government-Backed SBA Loans

This is a useful blog to read if you are reviewing your options for a small business loan. The information gives a clear breakdown of Government-backed SBA loans and has been brought to you courtesy of "Natural Intelligence"

What is an SBA Loan?
SBA loans are loans issued by private lenders and backed by the U.S Federal Government’s Small Business Administration (SBA). These fixed-rate loans are designed to make it easier for small businesses and entrepreneurs to get financing. 

More than 800 lenders, community development organizations, and micro-lending institutions are authorized to issue SBA loans. Under the SBA’s 7(a) loan guaranty program, the lender provides the loan and the SBA promises to pay the lender a portion of the loan if the borrower defaults. 
Having government backing allows lenders to take on more risks when it comes to providing loans to small businesses. In the 2018 financial year, lenders issued a combined $25.4 billion in SBA loans.

How to Choose the Best SBA loan For many businesses, an SBA loan is a way to get a lower interest rate than a regular business loan. 
There are 2 reasons for this:

• First, the government caps fixed-rate SBA loans at a certain level. 
• Second, lenders are willing to take more risks when they know the government is there to bail them out. 

Having said that, rates can still vary from lender to lender. Therefore, the first thing to look for when comparing SBA lenders is interest rate. In addition, we recommend comparing lenders by reputation, level of customer support, and ease of application process.

What are the SBA Loan Requirements? 
The Small Business Administration sets rules and guidelines that lenders must follow when issuing SBA loans. To qualify for an SBA loan, a business must be a for-profit business located in the United States or its territories. The business owner must have invested their own time and money in the business and must have exhausted all other financing options. In addition to standard 7(a) loans, some lenders offer 2 other types of loans, subject to different requirements. These are 7(a) small loans, up to $350,000; and SBA Express, up to $350,000, with a turnaround time of no more than 36 hours.

The SBA last updated its guidelines for standard 7(a) loans in 2018. Business owners should be aware of these requirements:

• Maximum loan amount is $5 million.
• Minimum credit score is usually 700, although some lenders have been found to accept credit scores as low as 620.
• Collateral generally isn’t a requirement of loans worth $25,000 or less. Loans of $25,000 to $350,000 always involve some collateral. For loans exceeding $350,000 the SBA requires lenders to “collateralize the loan to the maximum extent possible up to the loan amount.”
• Businesses involved in certain industries, such as gambling, medical research, and marijuana, are ineligible—even if their activities are legal in the state where they are located.

Applying for an SBA loan typically involves a lengthier application process than for a regular business loan. The following is a list of thing lenders may take into consideration:

• Personal background, including criminal record. Anyone owning more than 20% or more of the business must fill out a form with their personal information and sign a personal guarantee.
• Business background. Members of the company management team should be prepared to provide a resume outlining their business and work experience.
• Business plan. This should include a value proposition, financial statements and projections, details of any existing debts, and a clear outline of how the SBA loan funds will be used.
• Personal and business financial statements, tax returns, and bank statements.
• Business credit report. As with a personal credit report, the lender will need you to provide details so it can access this report.

Alternatives to SBA Loans Small business owners may only apply for an SBA loan after exhausting all other options. Here are a few loan types to think about first.

• Business line of credit. Arrangement whereby a lender agrees to supply credit to a business owner.
• Business term loan: These include secured and unsecured business loans. Unsecured loans typically come with lower APRs, but require the business owner to have very good credit.
• Business credit card: Some credit cards offer a no-interest introductory period, making them suitable for covering small starting expenses without accumulating debt.
• Invoice factoring: This is a type of advance on your outstanding invoices, where the lender effectively purchases your business’s accounts receivable. 
• Merchant cash advance: These involve borrowing a lump sum and repaying it by withholding a percentage of daily, weekly or monthly sales.

 Information provided by
​Natural Intelligence