SBA Loans: The Basics Every Business Owner Should Know

If you run a small business, you’ve probably heard of SBA Loans. If you haven’t, this is a great opportunity to change that. There are a handful of different loans sponsored by the U.S. Small Business Association, all of which are designed to help small business owners with a specific aspect of business financing. Any of these loans can help you with your business, whether you’re looking to upgrade your equipment or build a new office.

How They Differ from Conventional Bank Loans

The primary difference between these loans and a standard bank loan is that these are sponsored by the SBA. So, while they’re still funded in large part by a bank, a certain portion of the funds are guaranteed by the SBA, so the banks take on less risk in loaning the money to a small business. This is important because a small business often looks like a risky investment to a bank, be that because of a shorter financial history or high costs upfront with no guarantee of future profits.

Though there are a few different types of these loans, they do all have a few things in common. These loans are easier to qualify for, so if you’re a newer business with less credit history or a lower credit score it won’t be as damaging to your application. They also tend to have better terms — greater flexibility in the application of funds, more time to repay, lower interest rates.

What This Means for You

After reviewing the above information, SBA loans probably sound pretty great, and they are. However, all of those benefits do come with a few drawbacks. Unsurprisingly, all of those advantages require some extra paperwork. The application process for these loans is very demanding, and you’ll need to have a lot of documentation to back yourself up. In addition to steeling yourself for some papercuts, you’ll also have to meet a few requirements: your business needs to be for-profit and based in the U.S., and you need to show that you’ve invested your own time and money into the business and are still in need of additional funds.

If you can do all of the above, then you should start looking into finding a lender and identifying which loan will work best for you. If you’ve done some research but are still at a loss, don’t despair; there are many different loan experts out there who are happy to help guide you through your options and the application process.