At every phase or point of running a business, small business owners know that someday they might need extra capital to help them achieve the desired goal. It is common to open a new business with loans from family members or personal savings.
However, once these sources run dry, small businesses will have to take up formal business financing to cover business needs like renovations, expanding to new locations, and cover payroll gaps. The problem is that not all small business loans have the borrower’s best interest in mind.
That said, it’s where the Small Business Administration (SBA) enters. This government agency aids in disseminating funds or financial resources to small businesses through the SBA loan program. The appeal of the SBA loan program is robust. For most companies, it is their golden ticket to fund their venture.
Below are a few reasons why small business owners need to check out their qualifications for an SBA loan.
Vested Interest In Surveying Borrowers Succeed
The Small Business Administration has a special interest or concern in seeing your startup succeed with their SBA loan program. It’s because they guarantee up to 85 percent of the loan to the bank.
Evidently, no good creditor would want the debtor to default on a loan because it will be a no-win situation for all parties. Even so, no lender will offer the level of resources that the SBA provides, such as training, counseling, and connecting you with people who can help you towards success.
As a matter of fact, this federal agency makes tons of their resources for existing and new small business owners readily available and obtainable to anyone, kicking off with their Local Assistance database and SBA Business Guide. What’s more, borrowers will get more assistance or help once repaying a loan is on the line.
This support and reinforcement will undoubtedly be necessary for small business owners, especially if they have poor credit.
Multiple SBA Loans
In case you didn’t know, the SBA loan is not just suitable for all purposes. In fact, there are many different loan products you can be eligible for, whatever business stage you’re in. For instance, the three most popular and prevalent SBA products are the Microloan, 504/CDC, and 7(a) program.
The Microloan program is limited to $50,000 and is mainly designed for new business owners. Also, it is geared toward business owners from deprived entrepreneurial communities, like veterans, minorities, and women.
On the other hand, the 7(a) loan can be used for buying inventory, refinancing debt, and other working capital needs. Out of all the SBA loans, the 7(a) is the most flexible. Whereas, the 504/CDC loan is used for purchasing commercial real estate. Both the 7(a) and 504/CDC loans are exclusively for businesses that have been up and running for several years and could also be for millions of dollars.
But even if you just opened your business last month or a decade ago, there is undoubtedly an SBA loan product that can meet your needs.
Makes Bank Loans Possible
The vast majority of small business owners looking to finance their business will not have the capital, revenue, or business credit history to qualify for a bank loan. Take note that bank creditors consider small businesses as a bigger risk to lend.
Also, the amount of money small business owners usually need is not worth the effort and time required to underwrite them. That said, an SBA loan might be the first bank loan product for a small business owner.
Moreover, if getting and paying off the SBA loan goes smoothly, small businesses will then be able to qualify for bank loans in the future.
There Are SBA Loan Products For Every Business Need
As we’ve mentioned, some SBA loan products are intended to be used for working capital, while others are for covering startup costs or purchasing real estate. What’s more, you can use an SBA loan to consolidate debt from your other loans.
Even those who find it hard to get business funding can obtain an SBA loan that is aimed at their needs. As a matter of fact, if you have gotten an SBA loan, you are not limited to taking out a second loan. However, you cannot use it to refinance your first SBA loan.
Keep in mind that all loans come with risks. There’s no risk-free loan option. Applying for business loans will need you to improve your credit score, pay off interest, and put up assets, particularly if you default on your loan.
However, an SBA loan is considered as the least risky option available today for small business owners. That said, if you want to grow a business or have been planning to start a business, then SBA is the place to seek financial help.