The Small Business Administration, or SBA, is an indispensable organization for many small businesses. The SBA program helps companies throughout the country to secure the financing that they need to grow. However, the SBA’s strict requirements and numerous policies can be challenging to navigate for the first time. In this article, we break down the ins, the outs, and the key points that you need to know to determine whether an SBA loan might be the right fit for your business.
Why consider SBA loans?
Borrowing from a government entity is no one’s idea of perfect. This part of what makes an SBA loan so desirable. Rather than borrowing the money directly from the government, the loan is provided by a private lender, such as a bank. That loan is then secured by the government, guaranteeing the lender help in the covering the remaining balance should the borrower default. This ensures that the lender feels secure and allows for the attractive rates that define SBA loans. The SBA also provides education and resources, which can further reassure lenders that the borrowers are being properly supported in growing their businesses and maintaining the cash flow necessary to repay the note.
What are the different types of SBA loans?
There are 2 types of SBA loans, 7a and 504. The differences between the two come down to what they can be used for and what their rates are. A 7a loan can be used for the purchase of inventory, materials, or real estate, as well as to purchase an existing business. This particular type of loan has strict requirements as to what constitutes a qualifying small business, including that the business must operate for profit, is located or doing business in the US, and has sufficient equity.
Additionally, there are requirements for the financial resources available to the business. Before applying, applicants must have exhausted all financial resources, including personal assets. They also cannot be delinquent on any existing debt to theU.S. government.
A 504 loan, on the other hand, can be used for the purchase of real estate or equipment. These loans can fund 90% or more of the purchase. 504 loans also have a much higher lending limit that 7a loans. As a result, these loans are ideally used for purchases that will have a long-term value, meaning they will see continued usage for an extended period of time during which they will generate the revenue to pay off the debt.
How do I get SBA loans for clients?
As noted above, the SBA’s role is simply securing a portion of the financing in order to protect the lender in case of default. So brokers start by connecting with lenders who are registered to issue loans through the SBA. After developing a network of these lenders, a broker will then typically work with 2 – 3 lenders simultaneously in order to locate the best loan terms for each individual client.
The SBA can be a great help to clients
The SBA is a valuable resource for many small businesses. Not only do they provide assistance in getting a loan, but many branches will have training, informational resources, and provide unique opportunities for small business to grow and build their network. Navigating and understanding the intricacies of SBA financing is an essential service for your clientele and can give them the financing they need to continue to grow their companies. To learn more about the SBA and how it fits into a broker’s lending toolbox, check out any of our training programs.