SBA Loans | Small Business Loans | What is an SBA Loan
Let’s talk about loans for small businesses:
Are you thinking about starting a small business, or maybe expanding a business that you already own? If so, you may need to apply for a Small Business Loan. One very common type of small business loan is an SBA (Small Business Administration) Loan. If you live or work in Collin or Rockwall County, we can help you understand small business loans and how to apply.
What is a small business loan or an SBA Loan?
A small business loan is exactly what it sounds like. It is a loan from a bank to start a small business or to expand a small business. Small Business Loans, SBA loans and SBA expansion loans might include monies for equipment, additional building space or even funds for purchasing a new location or building a place of business. As an owner of the business, you would apply for a loan and negotiate the terms, interest, and repayment schedule. Small business loans can vary greatly, depending on need and can be anywhere from $500 to $5 million.
What is a conventional loan for a small business?
Not everyone can qualify for an SBA Loan with a government guarantee, and many business owners simply don’t want to go through the required paperwork. A conventional loan is a more traditional loan from a bank with the sole responsibility of repayment resting on the business owner. Given the risk involved to the lender, these loans are usually made only to very established businesses or to the bank’s best customers. This type of loan can also have a lengthy application process. The up-side of a conventional business loans are their fixed interest rates and predictable monthly payments that can be used for a wide range of business purposes with fewer restrictions.
How is an SBA loan different from a conventional loan?
The difference between a conventional loan and an SBA (Small Business Administration) loan has to do with financial risk. An SBA loan is partially guaranteed by the government, which reduces the risk of an unpaid loan to the lender, or banking institution. Whereas a conventional loan is not guaranteed by the government, and the bank can be at risk for the entire loan if it is not repaid. SBA loans also protect the business owner and have the following advantages:
- The business owners’ primary residence is not at risk.
- Collateral is not necessary: SBA loans were created because a lot of new businesses do not yet have the collateral required to secure a traditional loan.
- SBA loans often have higher loan amounts, longer payment terms and lower interest rates than traditional loans.
- Attractive for banks, because the government will “insure” up to 85% of the loan amount, making it less risky for the lender.
- Attractive for business owners because personal property is not at a high risk.
What can I use an SBA loan for?
The Small Business Administration has a few specific requirements for what a loan can be used for. There are also two types of loans which have different requirements as to how the money is used:
- SBA 7(a):
- Most popular type of loan, used primarily to create working capital.
- Can be used for furniture, fixtures, equipment, and leasehold improvements.
- Can be used to acquire an existing business.
- SBA 504:
- Specifically for economic development and creating new jobs.
- Refinancing current business debt.
- Starting a new business from the ground up.
- Purchase existing buildings or building a new place of business.
Can anyone apply or receive an SBA loan?
Not everyone who is starting a business or wants to expand their business will qualify for an SBA loan. Some of the requirements can feel daunting, however once approved, can be very beneficial and worth the extra effort and paperwork. At the Collin SBDC we can help you discover if you would qualify for a SBA loan, and we will help you understand the process of applying for this type of loan. To see if you qualify for our expert (and free) help, please fill out the information HERE. If we are unable help you, or if you don’t qualify for our services, we can steer you in the right direction.
How do I get a small business loan or an SBA Loan?
In my next blog, I will discuss the particulars of getting an SBA loan, if you can qualify and what to expect during the application process. We will discuss what banks look for and how you can best prepare yourself and your business to receive this type of business funding. If you live or work in Collin or Rockwall Counties, you may qualify for our services at the Collin SBDC. We can help your small businesses grow successfully.
For additional resources on SBA loans, small business loans and the qualification process, please contact us at the Collin Small Business Development Center – SBDC – serving Collin and Rockwall County areas, Texas.
*Blog by: Alex Plotkin