Everything You Need To Know About SBA Loans
Business owners have many different financing options for obtaining capital. Some options are better for short-term needs and others are awesome for big-ticket purchases such as real estate and equipment. SBA loans are unique in that there are options for working capital and large purchases alike. These loans are popular with small businesses and they offer many benefits.
What Are SBA Loans?
The first question is what an SBA loan is. The initials stand for the U.S. Small Business Administration, which is commonly known as the SBA. This government organization revolves around promoting small businesses and helping them achieve financial stability. After all, these smaller companies are essential for driving local and national economies.
An SBA loan is a type of financing that is backed by this government agency. The SBA doesn’t extend loans directly, so there’s no need to go to one of their offices to apply. Instead, these loans are offered by participating banks who coordinate with the SBA. The SBA backs, or covers, a large portion of the loan’s principal. This makes banks more comfortable because they know a lot of the money they extend is safe. In exchange, they can offer loans to business owners that may not qualify normally.
What Are Common SBA Loans?
There are two main options for small business owners looking for SBA financing. The first is a 504 loan. This option helps entrepreneurs qualify for significant amounts of capital. However, 504 loans are only for real estate, such as new construction or existing building purchases, and equipment needs.
If small business owners need working capital to fund another important purpose to grow the company, they can also apply for a 7(a) loan. These loans offer short-term capital, revolving credit options, long-term capital, and financing for inventory purchases.
What Are the Benefits of an SBA Loan?
The first reason that SBA loans are popular is that they have low-interest rates. Because banks don’t have to worry about a large amount of risk, they’re willing to offer loans with some of the lowest interest in the market. That way you maximize your business capital while minimizing payments.
Another benefit is that this type of financing is more accessible. It still takes time to get approval, and you need to meet minimum time-in-business requirements, but it’s much easier to get approved than with a traditional term loan. Even if you don’t have lots of business assets to use as collateral or a perfect credit score, you can still get the capital needed to keep your company healthy.