Understanding SBA loans: A primer for small business owners
Money is often a resource in short supply for small business owners, especially those wanting to share their operation. However, those in need of funding may find the federal government is a viable source. The U.S. Small Business Administration (SBA) is a federal agency committed to furthering the growth and development of small businesses. One of the ways it does this is by guaranteeing loans to small businesses made through lending partners nationwide.
So, what does this mean for borrowers? You should know an SBA loan is not a check from Uncle Sam. That’s because the SBA does not make loans directly to small businesses. Rather, it sets the guidelines for loans, which are made by lending partners nationwide. Those institutions can include banks and economic development organizations. The SBA does guarantee a percentage of the loan, cutting down on the risk to the lending partners. Additionally, it increases the possibility that small businesses will receive the funds they need.
You may wonder if your business qualifies for such a loan. The answer will depend. Small businesses must meet certain criteria to qualify for an SBA loan, including size requirements, financial standing and for-profit status. SBA loans cannot be made to a small business if the borrower has access to other financing that offers reasonable terms. In addition, a small business must meet the credit qualifications of the lending partner. Advantages include lower down payments and longer repayment terms than conventional bank loans, enabling small businesses to keep their cash flow for operational expenses and spend less on debt repayment.
Inquiring with a lender about financing options is the first step. An essential part of success in today’s business world is to fully understand your short and long-term financing needs, and find the best solution to fit them. Money doesn’t grow on trees, but you might find an SBA loan makes financing within reach.