Small to medium businesses usually gain loans from the Government, Banks & other private lenders. However, they need to meet some general criteria present in the applications covering a range of information and requirements.
With Biden’s 1.9 trillion stimulus and Made in America bills approved – it has created a great space for business owners looking for easier and less complicated financing; as a result, the SBA loan scheme has become quite popular.
What is an SBA Loan?
SBA stands for Small Business Administration. The US Small Business Administration does not directly sanction loans, but it helps you gain one.
This means they work with financial organizations and lenders to provide loans under their supervision while also regulating these loans wherever needed.
It also acts as a co-signer for your business to help qualify you for Business loans from third parties by acting as a guarantor.
But how do you qualify for an SBA loan?
The current economy is volatile, and following the financial losses caused by many coronavirus-related closures, more businesses are competing for working capital, so we have plenty to help you diversify your investment portfolio.
Here’s how to get in on what’s available.
Meeting the SBA Requirements
There are a few guidelines that both Essential & Non Essential Businesses need to meet in order to qualify for SBA loans.
The SBA authority works closely with its Partnering Lenders and Community Development Organizations to set these regulations; thus, it is imperative that businesses meet the requirements first to apply for SBA Loans.
Here are the basic criteria that you need to operate with SBA –
- Businesses need to be under the criteria of ‘small businesses’ (as per size standards)
- Businesses require to be ‘for profit
- The Business requires to be based in the United States.
- The Business should repay the loan in due time
- The firm should have exhausted other loan options
Business Loan Application Process
Due to the current Pandemic situation, most Small Business Loan Application forms can be filled online.
As discussed earlier, the Application Checklists may vary from loan to loan; however, here’s a general outline of the information that you’ll need at hand prior to filing an SBA Loan.
- Name & Address of Owner/Director/Partners
- Phone number
- Date of birth
- Social Security number
- Name & Address of your Business
- Business License
- Type of Business
- Business Structure (Sole Proprietorship, Partnership etc)
- Names of Stockholders and % of Equity Ownership
- The Year of Establishment
- Number of Employees
- Amount of Loan requested
- Type of Loan
- Purpose of Loan
- Personal & Business Financial Statements
- Personal & Business History and Overview
- Loan Application History
- Business Lease
- Federal Tax Returns of Owners & Business
SBA Loan Programs
The Application Processes are unique for every Loan type, and it’s important that you understand which Loan you require and how they can be used as per SBA Guidelines.
This will save you time from filing applications for irrelevant loan programs.
Here are some of the most common SBA Loans that both Essential & Non Essential Businesses apply for.
1. 7(a) Loans - 7(a) loans apply for both Startups & Existing Essential & Non Essential Businesses.
7(a) loans can be used for long/short term working capital, buying or fixing fixed assets & supplies, and refinancing business debts (under certain conditions).
You may know more details in the 7(a) loans section of the SBA website.
Application Checklist for SBA 7(a) loans.
2. 504 Loans - These are fixed-rate, long-term loans provided by CDCs (Certified Development Companies) for equipment and property in development sectors.
General uses are gaining land, constructing & renovating buildings, parking lots, utilities, roads, etc.
You can know more about 504 loans here.
Application Checklist for SBA 504 loans.
3. Microloans - SBA offers Microloans up to $50,000 to community-based non-profit organizations & small businesses to initiate their business or expand it.
These loans can be used to procure supplies, purchase & enhance fixed assets; as well as for working capital.
Here’s all you need to know about SBA Microloans.
The official US SBA website does not provide an SBA Microloans Checklist.
The SBA Microloans providers themselves set the application criteria and terms &.
You may contact your local SBA District Office to check the enlisted Approved MCA providers.
There has been a huge growth of SBA loans among merchants and company owners during the pandemic too. Check out this for more detail.
Other Important Factors to Consider
Much like other loans, SBA loans require a credit rating of 670 or higher.
SBA lenders like to examine the Essential/Non-Essential Business Owner’s credit ratings to determine their likelihood of paying back loans.
So it’s best that you settle your Owings in order to improve your credit score -prior to applying for SBA Loans.
SBA loans often require business owners to provide collateral to secure a loan.
Collaterals generally comprise fixed assets like Buildings, Machinery, Office Equipment, etc. but are not limited to these.
Collaterals can also cover Inventory, Owner’s second mortgage on their homes, Account Receivables, etc.
Ensure All Documents
SBA requires loan seeking Essential/Non Essential Businesses to pay great attention in providing the documents entailed in the Checklists.
So, it is of utmost importance that you acquire and double-check all the required documents before applying for Small Business Administration or SBA loans.
While SBA loans are a great option, they require extensive paperwork and filing for Businesses. This requires Business Owners to put much time and effort into the application process. On the contrary, other non-traditional loans like Merchant Cash Advances or MCA loans require much less paperwork and documents to be provided to acquire a loan.
Needless to say, they are more accessible to the business.