Small Business Basics: The SBA Loan

 If you are thinking about starting or acquiring a small business, you will need to know what an SBA loan is. SBA stands for Small Business Administration, which is a Federal Agency that is dedicated to assisting entrepreneurs obtain small business loans. The SBA does not provide financing directly to small business owners; it simply works with banks to provide financing to those who are classified as small business owners. 

How To Obtain an SBA Loan

To obtain an SBA loan, you should expect to provide an analysis of your credit, financial statements, and some source of collateral to secure the loan. In order to apply, an extensive loan application will need to be filled out along with any documents the lender deems necessary to analyze whether or not you qualify for the loan. These packages will often require you to provide a description of the business, information on the type of collateral you are using to secure the loan, and ways that you will use the loan proceeds. Historically, strong candidates for SBA loans have good credit, a solid business plan, collateral, and the ability to repay the loan.

What Kinds of SBA Loans Are There?

There are several kinds of SBA loans that a small business can apply for and the categories are divided into different uses. First, there is a General Small Business Loan 7(a), which is the SBA’s most common program that provides financial help for businesses with special requirements such as what the business does to make money, the character of the ownership and where the business operates. Second, there is the Microloan program that will lend up to $50,000 to help small businesses and not-for-profit childcare centers start up or expand. According to www.sba.gov, the average Microloan is about $13,000. The third loan option is the Real Estate & Equipment Loans: CDC/504 which provides financing for major assets such as equipment or real estate. As with any of the mentioned loans, there are requirements for the CDC/504 loan as well, the most notable is that this loan is not available to businesses engaged in speculation or investment in real estate. Lastly, the SBA provides Disaster Loans which carries one of the lowest interest rates and is available for small business owners to replace or repair items that were damaged or destroyed in a declared disaster (like Hurricane Sandy). The Disaster Loan can be used for any of the following items: real estate, personal property, machinery and equipment, and inventory and business assets.

Net To You

Now that you know what the SBA is and what an SBA loan is, take advantage of the loan programs that are made available to small business owners as they are pertinent for those looking to start or expand a small business. All of the information found in this article can be further researched at www.sba.gov.  

Written By: Tayler M. Hudson, Summer Associate at the Marzella Law Group, PLLC and Rising 2L at North Carolina Central University School of Law.