Running a small business often leads to various challenges and opportunities that require additional capital. Small Business Administration (SBA) loans are a popular option for securing funding. These loans are designed to support small businesses by providing access to government-backed financing with lower interest rates and more extended repayment periods.
This blog article from Huddle Business Capital provides an overview of SBA loans, detailing what they are, explaining the application process, and more. We begin this article with an introduction to the SBA itself, discussing its origins and mission to support small businesses across the United States. By understanding the history and purpose of the SBA, you can better appreciate how these loans help empower entrepreneurs like yourself.
What is the SBA?
The Small Business Administration (SBA) is a U.S. government agency formed in 1953 to support and promote the growth of small businesses nationwide.1 The SBA provides a range of services to business owners, including access to financing, business counseling, education, and federal contracting opportunities. The SBA also assists small businesses with federal regulatory enforcement or compliance issues.
Perhaps the most well-known function of the SBA is to work with approved banks and lenders that structure and deliver SBA loans. The SBA does not provide the actual funding for loans; it is provided by banks and lenders. The SBA's role is to guarantee a portion of the loan amount to protect lenders from financial loss if borrowers default on their loans.
SBA loans at a glance.
The SBA started guaranteeing loans for small businesses in 1954,2 the year after the SBA was established. The first guaranteed loans were designed for victims of national disasters and to help qualifying small businesses obtain government contracts. Over the years, the SBA has expanded its loan program offerings with various loan options. These include SBA 7(a) loans, SBA 504 loans, SBA microloans, SBE express loans, SBA disaster loans, and SBA working capital loans.
As mentioned at the beginning of this blog article, SBA loans have lower interest rates and longer repayment periods, two key benefits for business owners. Lower interest rates can reduce the overall cost of borrowing, and an extended repayment timeline allows business owners to spread out their payments, resulting in lower monthly obligations and greater cash flow.
How to apply for an SBA loan.
If you decide to apply for an SBA loan, you'll need to choose a business funding resource, such as Huddle Business Capital, and gather the necessary information for your application. Keep in mind that the SBA loan application process is more involved than that of a traditional loan and requires additional documentation. Huddle Business Capital is here to assist you in getting started with minimal paperwork required for qualification.
Finally, a personal guarantee is required from everyone with at least 20% ownership of your company. This means that you (and any other owners) are personally responsible for repaying the SBA loan if your business cannot do so.
The SBA loan application review process.
After you have completed and submitted your SBA loan application, your lender will provide regular updates regarding its status throughout the review process. The approval turnaround time will depend on the type of SBA loan you seek. Certain SBA loan products like express loans and microloans have faster review times than multi-million dollar loan products. Huddle Business Capital, for example, offers SBA "express" loans from $25,000 to $150,000 through a Preferred SBA lender we work with, and they have quick turnaround times.
In the event that the SBA approves your loan application is approved, it will be transferred to your lender, who will take care of underwriting and provide you with a loan agreement. The time it takes from application to approval to funding will vary depending on the type of SBA loan, the loan amount, and your lender. Typically, this process can take anywhere from one week to several months.
Make timely loan payments.
Making your SBA loan payments on time can help you maintain a favorable business credit profile and avoid unnecessary fees. This enables you to stay in good standing with your lender and opens the door to future borrowing opportunities. Setting up reminders or automatic payments can help reduce the risk of missing due dates.
Sources:
1 - https://www.sba.gov/about-sba
2 - https://www.sba.gov/about-sba/organization/observances/celebrating-70-years-service-americas-small-businesses
Disclaimer.
Huddle Business Capital is not affiliated with nor endorses the Small Business Administration (SBA). This Huddle Business Capital blog article is purely educational and contains general information and opinions; it is not intended to provide advice or recommendations of any kind.
