If you are a small business owner, you already know the importance of financing not just when getting started but also as you grow your business. Unfortunately, small business loans with affordable terms are not always easy to find. This is where SBA loans can help.
SBA Loan Defined
An SBA loan is a business loan backed by the Small Business Administration. Instead of disbursing the loan itself, the SBA guarantees a maximum of 85% of the amount of the loan provided through a lender approved by the agency. These lenders are often non-profit lenders or banks.
With the backing of the SBA, the bank will more readily approve a small business for a loan that has a low down payment, long repayment term, and a reasonable interest rate.
These loans also come in various forms although the most popular ones include the SBA 504/CDC loan, the SBA Microloan, and the SBA 7(a) loan. These loans can be used to buy equipment, add to working capital, expand your business, and more.
Benefits of SBA Loans
SBA loans are no doubt the most in-demand lending product for small businesses available on the market right now. This is because it is the ideal financial middle ground for owners of small businesses. Some programs even offer flexibility in how you will use the loan proceeds with the loans themselves secured as well.
Here are the top benefits of SBA loans:
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- It’s meant for small businesses.
Banks are usually hesitant to fund small businesses since these are riskier bets compared to larger corporations. They also need extensive underwriting for smaller amounts of loans.
Online lenders, on the other hand, tend to have more relaxed requirements. They are also more willing to fund smaller and younger businesses with lower credit scores, often offering loan products with higher interest rates due to the assumed risk.
SBA loans are also a great middle-ground offering small businesses funding bank loan-type at affordable rates and encouraging repayment and growth.
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- Funds can be used in different ways.
Several SBA loan programs implement various rules regarding the use of proceeds. But with an SBA 7(a) program, for instance, a recipient will be able to use the loan for renovation and expansion, new construction, building or land purchase, as working capital, buy equipment, refinance debt for good reasons, and so much more.
Some programs let you finance purchases of long-term fixed assets., use the loan as a seasonal credit line, and others.
3. Loans are secured.
SBA loans often require collateral but nothing is wrong with this. It is almost impossible to look for an unsecured business loan, or one that doesn’t come with collateral, that has reasonable interest rates. With collateral in place, you can inform the bank of what you want to give as payment if you end up defaulting on the loan for whatever reason instead of just leaving things to them.
Thanks to SBA loans, small business owners can finally get the funds they need to grow and expand their ventures.