As an entrepreneur, you may need a cash boost now and then. Thankfully, there are several options for getting capital for your business. One such option is the SBA loan. This article aims to help you understand what an SBA loan is and how to apply for one.
What Is an SBA Loan?
SBA loans are provided by banks and other lending institutions that have partnered with the Small Business Administration (SBA). These loans aim to help small businesses expand and grow, which in turn helps boost the economy. They’re available for companies that meet specific qualifications, including:
- Being in business for at least two years
- Having a good credit history
- Having a good business plan
Generally, you can get up to $5 million through an SBA loan with a repayment term of up to 10 years.
How Do You Get an SBA Loan?
In order to get an SBA loan, your business must first apply through the online portal on the lender’s website you choose. After your application gets approved, you’ll be contacted by someone from their company who will guide you through the process. They will also explain what documents you need. You may also be required to meet with someone from their company if they want more information about your business or if they need additional information from your accountant or financial advisor.
What Are Some Advantages of Getting an SBA Loan?
There are many advantages associated with getting an SBA loan, including:
- Lower interest rates
- Flexible repayment terms
- No collateral required
Examples of SBA Loans
There are different types of sba loans. These are:
- Microloans
- Minority loans
- Women-owned small business (WOSB) loans
- Abandoned property loans
Microloans
These are small loans that are given to small businesses. The maximum amount is $35,000, and the average loan is $14,000. These loans are typically used for the following purposes:
- Increase the working capital
- Repayment of debts
- Purchase of equipment or inventory
- Expansion
Minority loans
These are loans that are designed to provide financial assistance to minority-owned businesses. The maximum amount is $1,000,000.
Women-owned small business (WOSB) loans
These are loans that are designed to provide financial assistance to women-owned businesses. The average loan is $500,000.
Abandoned property loans
These loans are given to businesses that want to buy abandoned property. The maximum amount is $5,000, and the average loan is $3,000.
Out of the four types of SBA loans, the most accessible SBA loan to get depends on situational circumstances. For instance, 504 loans would be the best option if a business needs working capital. If a company is interested in buying abandoned property, the 7(a) loan would be the best option. As per the experts at Lantern by SoFi, “if you default on the loan, the SBA guarantees repayment to the lender, making SBA loans relatively low-risk—and appealing—for lenders and borrowers alike.” If you are a woman in business, there is a higher chance of securing an SBA loan in the form of a Women-owned Small Business loan.
