What is a SBA Loan and How Does it work?

What is the SBA?

The SBA stands for Small Business Administration. It is a government agency that works as a guarantor for unsecured business loans and unsecured business lines of credit.  These unsecured business loans/lines of credit are meant to promote and motivate the development of small businesses.  SBA loans are low interest loans repaid long term.

The SBA does not provide the unsecured business loan or unsecured line of credit to the business; rather the SBA makes the lender more at ease to lend to promising businesses with bright futures.

The SBA guarantees up to 80% of the unsecured business loan or unsecured line of credit.  Because of this, financial institutions feel confident in giving a lower interest rate then they would typically give.  They also waive certain fees and some of the loans have a very swift process.

The SBA does not deal with business owners directly, but instead, financial institutions will draw up the unsecured business loan or unsecured line of credit if they believe a borrower can or will meet the requirements of the SBA for an SBA loan.

The SBA has several kinds of unsecured business loan or unsecured line of credit programs and the application process varies depending on the type of SBA loan being sought.  The unsecured business loans or unsecured lines of credit have different limits and rates depending on the loan program, the business plan, and the lender’s decisions.  The lender should help you figure out which unsecured business loan or unsecured line of credit program will be best for your needs.

The SBA is meant to help small business obtain affordable financing.  The process for obtaining an SBA loan can be highly involved.  However, the costs are minimal when balanced against the benefits.

The thing that will help you the most during the application process for an SBA guaranteed loan is a well thought business plan with realistic models for establishing and keeping a lucrative business.  A franchise is a good example.

Generally, SBA loans are used to purchase property, materials, and equipment needed to expand an already successful, established business.  Many applicants are business with steady income that lack capital.

Financial Institutions present SBA loans to businesses that will effectively use it to continue the on going success of the business.  Because of this, qualifications for an SBA loan are different from those of other types of loans.  Specifically, there is less of a need for the business to show cash assets and collateral.  When your business acquires a loan through the SBA it is understood that the loan will be paid back with smaller payments of a longer period of time.

If you’d like to know more about the SBA and their loan programs, please visit: www.sba.gov.