Every business has different needs, and no financial solution is one-size-fits-all. We will review your choices to make SBA work for you so that you can review this source for capital sustainment. Funding your business is one of the first — and most important — financial choices most business owners make.

Ultimately, how you choose to fund your business could affect how you structure and run your business.

SBA Loans: Opening Up Funding Prospects for Small Enterprises 

We will go into all that SBA can do for your business and inform you that most people don’t even know about existing SBA options, like SBA microloans, where you can quickly get up to fifty thousand dollars. You can also use SBA loans to purchase equipment and real estate. You can actually get a lot of the funds from SBA, including money to start a brand new business or to expand an existing business for hundreds of thousands or even millions of dollars.

Even as a newer business, we’re going to discuss how you can access hundreds of thousands or even more through SBA startup loans and their other programs. So, let’s start at the beginning.

The SBA is vital; in fact, as an entrepreneur, it’s the most significant lending source you’ll encounter. To be clear, the SBA doesn’t lend money; instead, it guarantees loans.

Fundamentals of Terms and Interest

Here are two fundamental reasons why SBA is so important to you: First, SBA offers long-term loans, meaning that when you get a business loan, the term period is the most important factor in your payment to manage cash flow. This is far more important than interest ever will be. If you want to get money for your business and you want to keep your payments low, SBA loans are the best you’ll ever find because they have loan terms of 15, 20, or even 30 years.

The second reason SBA loans are so important is that interest rates are usually very low. When interest rates were low overall, they might be four to six percent. However, even when interest rates are rising because the Federal Reserve keeps raising its rate, we still see that you can get SBA loans for five to eight percent. 

There are many ways to get funding to expand your business, but most financing available to you has short payback periods of one year, six months, two years, or three years. This means the more money you borrow, the more expensive your payments will be.

That’s why we care so much about SBA-backed loans: They give us the best terms and options for long-term viability and sustainability. 

How do SBA Loans Work?

SBA loans are obtained through a lending institution like a bank or credit union. That lender then applies to the SBA for a loan guarantee, which means if you default on the loan, the government pays the lender the guaranteed amount.

Most SBA loans require an unconditional personal guarantee from everyone with at least 20% ownership in a company. This guarantee puts you and your personal assets on the hook for payments if your business can’t make them.

Both the government guarantee and the personal guarantee reduce lenders’ risk, making them more willing to work with small businesses.

Once approved for an SBA loan, your lender is responsible for closing the loan and disbursing the loan proceeds. You repay the lender directly, usually with monthly payments, depending on the amount and terms.

The Small Business Administration helps people start small businesses, win state contracts, and provides advice in management and finance. It also offers various management services, such as consulting, publications, and courses. 

SBA also offers support services and special programs for economically and socially deprived people, including minorities and women.

Types of SBA Loans that Can Fit Your Needs

SBA Micro Loans

There are many different types of loans, but one of the most popular ones that most people are unaware of is the SBA microloan. They are exactly what they sound like—small. By small, that you can get up to $50,000 with an SBA microloan. Most people are unaware that these loans are available for startups or new businesses because banks don’t offer them; instead, they’re provided through SBA subsidiaries. 

Because these loan amounts are so small that they are not worth the time of banks, you must go through SBA subsidiaries in order to obtain them. You can obtain them for a new business; in fact, they are intended for startups. You can receive up to $50,000, and it must be used for the majority of purposes known as working capitals, such as inventory supplies, furniture fixtures, machinery, equipment, and so on. 

Unlike many traditional loans, SBA microloans are available to small-business owners with no credit history, as well as lower incomes. The program is also geared toward businesses otherwise underserved by traditional banks, including women- and minority-owned businesses and those in low-income communities.

Generally, the eligibility requirements are:

• Minimum credit score. It’s usually good to have a credit score of 620 or higher.
• Time in business. Specific lenders will work with brand-new companies, whereas others may require two years in operation.
• Personal finances. You may need to be able to show that you haven’t had any recent bankruptcies, that you aren’t behind on tax payments, and that you don’t have any current liens against you.
• Business finances. Lenders may want to see a positive cash flow or at least positive cash flow projections. 
• Collateral. Many SBA microlenders will require you to secure your loan with collateral.

When you hear that a lender will lend for working capital purposes, it simply means that you can use the money for general business purposes like payroll, marketing, advertising, supplies, and inventory—the typical things that you and I are actually using SBA loans or using funds for—that’s what fits into this General category.

SBA 7(a) Loans

This program is the most frequently used loan program for helping start-ups and small businesses obtain funds when they cannot get them through usual channels, although it’s topical that most can seek this as a viable first option. 

Named after section 7(a) of the Small Business Act, the loan program is flexible since it can be used for various purposes, such as buying equipment or machinery, working capital, tenant improvements, and even debt financing. This loan is for for-profit businesses. 

The loans for working capital have a maximum maturity term of 10 years, and the maximum maturity term for the loans for fixed assets is 25 years. Although the maximum loan amount is $1.5 million, a business can borrow up to $2 million. This is because the SBA supports up to 75% of the loan. 

SBA Express Loans

SBA Express loans offer faster funding than other government-guaranteed loans but have smaller borrowing maximums.

With SBA Express loans, you can take out up to $500,000 from participating lenders either as a term loan or as a line of credit. This Express Loan can be used for a range of purposes, including working capital, business expansion or renovation, equipment purchases, real estate purchases and debt refinancing.

To qualify for an Express loan, Your business should:

• Meet the SBA’s definition of a small business.
• Be a for-profit business operating in the United States or its territories.
• Be able to show your ability to repay the loan.
• Meet the individual lender’s specific requirements.
• Minimum Fico Score of 650.
• Demonstrate strong annual revenue.

SBA 504 Loan

SBA 504 loans are an affordable option for funding equipment or commercial real estate purchases.

This loan can be used to buy land, real estate, equipment, machinery, furniture, or fixtures. It can also be used to build or upgrade facilities, including utilities, streets, or parking lots.

However, this type of loan is not for working capital, purchasing inventory, or real estate investment.

To qualify for a 504 Loan:

• Your net worth is less than $15 million.
• Average net income of less than $5 million for the two years before the application.
• You must use the funds to finance a significant fixed asset purchase, upgrade, or other eligible use case.
• Your project must create or continue a certain number of jobs or meet other public policy goals.

SBA Summary

SBA offers several viable options for funding. We can help you choose the best fit for your needs and fundability options. 

SBA 7(a) loan type	Maximum loan amount	Maximum SBA guarantee	Application turnaround time from SBA	Purpose
Standard 7(a) loan	$5 million.	85% for loans up to $150,000 and 75% for loans greater than $150,000.	Five to 10 business days.	Funding working capital, purchasing equipment and supplies, and facilitating real estate and business expansion.
7(a) small loan	$500,000.	85% for loans up to $150,000 and 75% for loans greater than $150,000.	Two to 10 business days.	Funding more minor financing needs.
Express loan	$500,000.	50%.	Doesn’t require SBA review.	Expedited funding for smaller loan amounts.
Export express loan	$500,000.	90% for loans of $350,000 or less and 75% for loans more than $350,000.	Doesn’t require SBA review.	Expedited funding to enhance a business’s export development.
Export working capital loan	$5 million.	90%.	Doesn’t require SBA review.	Funding working capital to support export sales.
International trade loan	$5 million.	90%.	Five to 10 business days.	Long-term funding to expand export sales or modernize to contend with foreign competitors.
CAPLines of credit	$5 million.	85% for lines up to $150,000 and 75% for lines greater than $150,000.	Five to 10 business days.	Finance short-term and seasonal working capital needs.

Fundability is the Key to Obtaining Capital

It is possible to obtain an SBA loan as a newer business, but you will need to have fairly strong financials because, on the personal side, your credit must be good and you will need to have assets that will be used as collateral. These assets could be a home, real estate, or any combination of these.

New Small Business: Credit and Collateral

SBA is an excellent option for you to get money because it is not driven by your tax returns, profit, or business assets.

The SBA likes to say that you should only go to them if you don’t qualify with many other places. Borrowers have typically been in business for less than three years, and some don’t qualify for funding elsewhere.

However, these days, it’s so easy to qualify with so many different kinds of financing with the SBA that they are still going to work to lend to you even if you can get approved for other types of alternative lending. The terms of the SBA are way better than the alternative lending going to you.

SBA’s guidelines will want to collateralize most of your assets, but again, profits or business revenues aren’t the drivers for success. Your personal financials can carry you through the loan process, as well.

For new start-ups, you must demonstrate that you personally have the means to repay the loan because you are not showing that the business can repay the loan. 

Stocks, bonds, 401(k)s, IRAs, or anything else of value you have on the personal side may need to be pledged as collateral because you do not yet have business assets, and you must have solid financials and a high personal income. 

However, if you’re a very successful business owner—perhaps you sold another company and have a lot of money in the bank now—then you could actually come in and obtain millions of dollars to expand your business. The amount of money you’re going to get from an SBA loan, however, depends on your own financial strength.

These funds are most frequently used for expanding businesses, working capital, equipment, supplies, inventory, and everything related to working capital. 

Your Fundability to Lenders

Many people think that SBA loans take a very long time to process, but that’s only if your Fundability is problematic.  If there is a problem with your fundability, if your business isn’t set up properly, or if you don’t have the correct information the lenders are looking for, it will be more difficult to obtain an SBA loan. 

When your fundability is properly set up, it’s much easier to get an SBA loan and close within a shorter period of time. However, there are times when people struggle and take months because they don’t have that fundability in line and the lender starts asking them for things that slow down the process. 

How do you qualify for loans and become more fundable?

The lender will ask for a number of items:

Personal and Business tax returns for three years. Lenders will check on how your business is set up in a way that is legitimate and credible. They will check our business address, phone number, website, email address, and everything else that must be consistent to ensure our trustworthiness and credibility. 

Credit Score: Lenders will also check our credit and want to see consumer credit that is good and free of blemishes, which SBA refers to as such. SBA advertised a minimum FICO score is 620, but I’ve seen people rejected with 780 credit scores due to a single late payment. For this reason, you should ensure you have good consumer credit and build up commercial credit, as these will help you. 

A business plan is essential to projecting your intent for the project, why you are the candidate to start, and the financials planning to ensure success. The lenders want to see that you have thought out and planned for contingencies along the way. 

Business Profitability: The lenders will also want to know how your business is doing and that you’ve done the due diligence research.

Funding is Great When You Have Options

SBA loans are an excellent option for business owners to get the capital they need to start and grow. We have discussed many options that are available to you based on your business needs, qualifications, and Fundability.

BizHub Nation is positioned to help you become more fundable and gain access to the capital you need. Want to know precisely what financing options might be best for you and your business? Our team can discuss options for you.

We will also discuss why you are usually denied and how to improve your credit score and become more Fundable so SBA loans become a viable option for new or established entrepreneurs. 

If you’re interested in getting money for your business, some of our resources can help, like this financing guide. To do so, all you have to do click the link below to receive more information.