What are your thoughts on using an SBA loan to grow your business? Is this something you have considered in the past? Is this something that you want to look into in the near future? Do you have enough knowledge of SBA loans to make the right decision?
Before you decide for or against an SBA loan, you need to understand what exactly an SBA loan is. To get this out of the way and move on to the finer details, we’re going to turn to the U.S. Small Business Administration website:
“The SBA works with lenders to provide loans to small businesses. The agency doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans made by its partnering lenders, community development organizations, and micro-lending institutions. The SBA guarantees these loans will be repaid, which eliminates some risk for the lending partners.”
Now that we have that out of the way, you need to learn about the finer details of SBA loans.
What Do You Need to Qualify?
This is an important question to answer, as you don’t want to spend too much time on this loan product if you don’t qualify.
While every lender is different, here are some general qualification requirements that are likely to come into play;
- Annual revenue of $100,000 or more
- A credit score of 620 or higher
- A minimum of two years in business
If you don’t meet the eligibility requirements right now, you may want to wait until you do before attempting to secure a loan. Of course, you also have the option to consider a different type of loan.
How Much Money You Can Get from an SBA Loan
If you’re going to apply for an SBA loan, you want to know what you can get in return. There are a few things to consider, with these details among the most important:
- Maximum loan amount: $5,000 to $5 million
- Loan term: 5 to 25 years
- Interest rate: starting at 6.5 percent
- Approval process: typically within three to four weeks
So, as you can see, there are a few things you need to think about.
For example, you need to decide how much money you require. Maybe you only need $10,000, or maybe you need to apply for $1 million or more.
Note: you can use an SBA loan for a variety of business purposes. It doesn’t matter if you own a marketing agency, restaurant, or some other type of business, there’s a good chance you can think of a few ways to use the funds of your loan.
For most business owners, the primary benefit of an SBA loan is the ability to get the funds they need. This alone is enough to excite them. However, there are other benefits to keep in mind, including:
- Low down payment
- Long payment terms (thus bringing down your monthly payment)
- Competitive interest rates
- The ability to use the funds for many purposes
It’s these types of benefits that push many business owners to an SBA loan, as opposed to other options.
The Potential Downfalls
With so many benefits, you may begin to wonder if there is anything wrong with applying for an SBA loan. There are some potential downfalls, including the following:
- A detailed application process
- Longer approval times than some other loans
- May require some form of collateral
Here’s the question you need to answer: do these potential downfalls outweigh the benefits of an SBA loan?
If the answer is yes, you may not want to move forward just yet. If the answer is no, this may be the type of loan that is best for your company.
These are the types of details that should help you decide if an SBA loan could be the right financial choice for your business at the present time.
Although you may not apply just yet, you should continue to learn as much as you can about this financial product.
What are your thoughts on SBA loans? Do you have any experience with this form of funding? Is it something that you would recommend to others? Would you apply for this type of loan again in the future? Share your thoughts on SBA loans, including your personal experience, in the comment section below. Your feedback can help other business owners make the right decision.