Crucial Considerations On SBA Loans For Your Small Business

June 3, 2010

Way back in 1953, the United States government felt that entrepreneurs in this country needed help to set up their businesses, and established the Small Business Administration, also known as the SBA. Essentially, the SBA guarantees qualified loans made by financial institutions, making it more attractive for them to lend money to businesses. Up to 90% of qualifying small business loans can be guaranteed under typical SBA loan programs. The most widely used category of loan, known as the 7(a) SBA loan, can be used for a wide variety of different business purposes.

The SBA has scrutinized all the banks in the country and has indicated which banks are “more business friendly,” as determined by the Administration’s Office of Advocacy. In the majority of cases the lender will talk to the SBA if it feels that it is not willing to assume all the risk of a transaction by itself. Then, the Administration will look at all the risks involved and the SBA loan would be made thereafter.

In any one year, tens of thousands of businesses have used the services represented by SBA loans and it is certainly true to say that they have been responsible for helping to elevate the numbers of self-employed in the United States, considerably.

There are not too many onerous requirements associated with SBA eligibility. In general, the Administration will look at the applicant’s personal credit history and the content of the business plan to see how they are handled within cash flow projections. The SBA will also look to see if the applicant has experience with the particular line of business concerned, how management control is exercised and how much of the applicant’s collateral is already established within the business. Should the applicant own more than 20%, he or she must personally guarantee the SBA loan.

SBA loans typically range up to 15 years, but this is dependent on the requirement. Specifically, loans that are needed for working capital can only be spread over seven years. If you are acquiring a business, on the other hand, the loan can be scheduled over a maximum of 10 years. To refinance property, look for an SBA loan that can be stretched over 20 years and with a purchase of real estate, you can even expect a period of up to 25 years.

You should have a business which turns over no more than $6 million per year and has less than 500 employees to qualify for an SBA loan. The SBA is particularly sympathetic to minority groups, including those run by veterans, women, Native Americans, although across the board, certain businesses are not considered, including those involved in speculative investments and non-profits.

If you have a relatively simple, startup enterprise in mind, you could consider the Micro-Loan program. This program is spread over six years and available up to $35,000. There are even simpler formats available for certain SBA loans, requiring very little documentation, also known as Low Doc, or those dealing with alternative financing, such as revolving credit and known as Express loans.

In summary, SBA loans are great ways for entrepreneurs to get outside funding, to push forward their business dreams and find access to the money that might otherwise be rather difficult to acquire.

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