How to Get an SBA Loan
A Small Business Administration (SBA) loan can be a great option for small business owners, particularly those seeking capital to start a business, buy equipment or purchase an already established business. An SBA loan is a government-backed loan for small businesses. The SBA created guidelines for its lending partners, and by guaranteeing the loans, it reduces risk for the lender – allowing them to offer financing to more small and growing businesses.
Let’s dive into the benefits, qualifying and applying for an SBA loan.
Benefits of an SBA Loan
Perhaps the most appealing aspect of an SBA-backed loan is the alternative funding opportunity it affords small business owners and entrepreneurs who are unable to meet the often-rigorous criteria needed for a conventional business loan. Often times, less money is required up front with more favorable terms for the business owner.
Down Payment – Typically, most conventional loans require at least a 20% down payment, but your cash contribution for an SBA loan can be as low as only 10%.
Collateral – Also, unlike conventional business loans, an SBA loan may not need to be "fully-collateralized"; depending on what the loan proceeds will be used for. For example, if you’re business is new or you’re asking for a loan less than $25,000. However, the loan will need to be secured by what assets are available both from the borrowing entity and the business owner. This is a conversation you will want to have with your SBA lender as each scenario may be a little different.
Term – While your term is dependent on how you will use the funds from the SBA loan, typically the term to repay the loan is longer than what you’d received with a standard business loan.
Who Qualifies for an SBA Loan?
A key qualifier for an SBA loan is your ability — or rather your inability — to qualify for a conventional small business loan. If you can meet the required collateral, established credit, etc., to be approved for a traditional or conventional business loan, you’ll likely not fit the criteria for an SBA loan.
The most common SBA eligibility reasons are:
- Loan is under collateralized
- Loan repayment is dependent on financial projections versus current cash flow (i.e. new or expanding/growing businesses)
- Lack of liquidity needed to satisfy requirement for a conventional loan.
Just being a new business could help you get qualified for an SBA loan. If you don’t have three years of tax returns yet, for example, CommunityAmerica typically considers you a startup business. Most often, being in the “new business” category lowers your chances for a conventional loan.
Applying for an SBA Loan
The application process is very thorough, asking for detailed information on where and how the funds will be used. It typically requires a detailed Business Plan, at least 3 years of financial projections, both personal and business tax returns and a personal financial statement. The type of loan you apply for can also impact what documentation is required.
At CommunityAmerica, we believe that local businesses are the heart of our community and want to help you build and grow yours. We offer a number of resources to help you learn about SBA loan options and can help you navigate and advise throughout the application process. To find out if an SBA loan would be right for your business, speak to one of our experienced Relationship Managers at 913.905.6673, request a call or visit your nearest branch location.