Starting a business is an expensive venture – one that could take years of saving and planning for. Most new business owners prefer to find investors or otherwise finance a new business through a local lending institution. Unfortunately, many lenders will not finance a new business unless you have significant collateral against the loan or a large personal investment in the business. SBA loans are beneficial to small business owners who do not qualify for traditional business financing, but want to start and manage a new business.
What is an SBA Loan
An SBA loan is a business loan backed and insured by the Small Business Administration. The Small Business Administration is a government agency that helps disadvantaged business owners get funding to start and manage their businesses. Although the SBA does not actually loan any money to business owners, it partners with certain lenders to provide government backing for private loans. The government backing is available to encourage lenders to offer loans to applicants who they may otherwise not offer a funding to.
You may apply for an SBA loan to either help start a new business or manage your existing business. For example, if your business is in need of new equipment, but cash flow problems are making it difficult for you to obtain a traditional small business loan to purchase the equipment, an SBA loan could provide you with the funding you need at a rate you can afford.
Keep in mind that because SBA loans are government-backed, there is more red tape surrounding them. You may have to go through more steps to apply for an SBA loan, and it may take several weeks months to get your funding. You should reserve applying for an SBA loan as an option only if you are unable to get a small business loan on your own.