Understanding SBA Loans

A Small Business Administration loan is a good funding option for business owners. It provides access to a loan that is guaranteed by the federal agency, ensuring low rates and long terms.

How Do They Work?

SBA loans work with partner financial institutions and credit unions to provide funds to companies in need of financing. The process is typically lengthy and involves much paperwork. The SBA guarantees a portion of the loan in case the borrower defaults. This guarantee reduces the risk for lenders, giving them the ability to offer competitive rates and fees.

What Do Businesses Need to Qualify?

Many different institutions issue this kind of funding, so there is no set list of qualification requirements. Basic requirements include the following:

  • Owners must operate a for-profit company.
  • They need to have both an excellent business credit score as well as a high personal credit score.
  • Companies should have a written business plan that describes the business and its services, defines the market and details management structure. 
  • An organization needs to provide collateral for the loan.

What Documents Do SBA Loans Require?

  • A valuation of the business
  • Real estate appraisals
  • An account of existing debt and the schedule detailing how the company is paying it off
  • Lease agreements
  • A balance sheet and income statement
  • Cash flow projections
  • Business and individual tax returns from the past three years
  • Business and personal bank statements
  • A personal income statement

What Does the Loan Process Involve?

A company first needs to choose a lending company. An owner may select a bank that regularly handles these government-backed loans to ensure smooth processing. Businesses that meet or exceed minimum requirements have the best loan approval chances. Lenders look unfavorably on recent bankruptcies or other delinquencies.

Once a business meets these qualifications, it must fulfill the additional SBA requirements. The SBA also has size standards, as they only back lending to small firms. Borrowers typically need to have proven business revenue and strong personal credit. They must also be current on any government loan payments.

How Long Does The Process Take?

The process to get SBA loans typically takes 60 to 90 days, depending on the chosen lender and the funds requested. Large loans with long terms might take an extended amount of time to process. Opting for a lender with SBA experience reduces timeframes as well. The SBA takes a more active role with less experienced lenders, which lengthens the time necessary for approval.

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