The SBA (Small Business Administration) is a federal institution that offers different programs and help for the development and growth of small firms and businesses. SBA loans refer to low interest, long term loans that can be availed by small businesses. The agency does not actually lend the money, but they in charge of creating the guideline for the real SBA loan lender. The agency also guarantees a part of the loan to decrease the risk for the actual lenders.
The different types of SBA loans are microloans, CDC/504 loans, and SBA 7(A) loans. The most well-known of the lot is the SBA 7(A) loan. It can be used for different purposes such as debt refinancing, working capital, hiring, advertising, marketing, equipment, machinery, tools, and supplies for franchises, business, and additional construction, etc.
SBA 7(a) loans can be availed by small business owners to the tune of $5 million. They must however put down collateral and 10 percent of the loan amount. The term of the loan for general uses can be up to 10 years. For the purpose of buying commercial property, the term can be up to 25 years. The fees associated with SBA 7(a) loans range from 3 percent to 3.75 percent; such fees are to be paid in addition to the interest charged. The interest rate on the loan usually ranges between 5.74 percent and 8.26 percent.
Applying for SBA loans
People who are looking to add funds to their current small business or want to launch a new business are usually the ones who are looking to get a business loan. There are many kinds of business loans available in the market, but the favored choice is often SBA loans guaranteed by the federal agency. These loans are popular because they can be availed by even small companies that typically do not meet the qualification criteria for traditional business loans.
The application process for SBA loans can be prolonged due to its immense popularity and high demand. It is therefore advisable for small business owners to check out all the programs offered by the Small Business Administration agency, select a program that suits their business, and then begin the SBA loan application process.
It is also recommended that business owners shop around and compare different lending firms and lenders that provide the kind of SBA loan that you have selected for your small business, before submitting the application for SBA loans. The federal agency has set limits on the rate of interest so as to protect loan borrowers from taking a loan with excessively high interest rates. Comparing the interest rates across a variety of lenders will assist small business owners in finding the best cost efficient business loan for their companies.
After the SBA program as well as the lender has been chosen, borrowers can start the process of SBA loan application. Ensure that all the necessary documentation is ready in advance. In addition to the SBA loan application form, borrowers also need to fill out a few other forms. Such forms gather the basic information of the business owner, a statement of personal finances, and a statement of his/her personal history for character evaluation.
One of the main cons of SBA loans is the application process as it involves lots of paperwork and a lot of time before the loans are closed and approved. The different stages from application to approval and disbursal of SBA loans take around 60 to 90 days to complete. Keeping all the required documents ready to be handed to the lender can help make sure that the application process proceeds without any unwanted glitches.