10 Reasons for Startup Businesses to Apply for SBA Loans

Posted at April 8, 2020 » By : » Categories : Business Funding,SBA Loans,Starting a Business »
SBA loans

The U.S. Small Business Administration (SBA) estimates that more than 627,000 new businesses open in the country every year. Are you at the helm of one of them? As you seek to get your startup off the ground, it’s likely that your expenditures will outpace your capital, at least in the beginning. This is where small business loans can make a world of difference.

Of all your lending options, SBA loans are some of the most established and secure. Are you considering applying for one?

If so, you’re already on the right track. Read on to learn 10 reasons why it pays to look into these loans, and the benefits they can offer your small business.

What are SBA Loans?

The SBA has established a lot of funding programs designed to help small business owners in the U.S. establish their business.

While the agency doesn’t lend money directly, they work with certain entities to provide and distribute necessary business capital. These entities include:

  • Partnering lenders and banks
  • Microlending institutions
  • Community development organizations

Loans guaranteed by the SBA range from $500 to $5.5 million, designed to help business owners cover various expenses, from fixed assets to working capital. Some of the most common types of SBA programs include:

  • 7(a) Loans (Working capital)
  • CDC/504 Loans (Fixed assets)
  • Microloans (New businesses)
  • Disaster Loans (Emergency-related needs)
  • Paycheck Protection Program (PPP)

Of these, 7(a) loans are the most wide-reaching, encompassing a variety of business use cases. Next, let’s take a look at a few of the benefits that recipients can expect upon approval, and why it’s smart to apply today.

1. Low-Interest Rates on SBA Loans

When you’re working to expand operations and help your startup take off, every expense can feel like taking one step backward. This is especially true if your business loan carries sky-high interest rates.

Unavoidable but never a joy to pay, interest can mean the difference between a manageable loan and one that’s a burden for years.

The good news? An SBA loan will carry a far lower rate than you’re used to seeing.

In general, these are much lower than those offered by private microlenders. In fact, many SBA-guaranteed loans carry rates and fees that are comparable to their non-guaranteed alternatives, even dipping into the single digits.

Your lender will be able to give you up-to-the-minute rates to make sure you’re comfortable with the terms. A few of the factors that will influence your company’s rate include:

  • Your loan type
  • Your repayment terms
  • Your company’s overall creditworthiness

2. Flexibility of Use for SBA Loans

Compared to other loans, which come with strict restrictions on how you can use the funds, SBA loans are generally more flexible.

Take the 7(a) program, for instance. Designed to be applied as working capital, this loan allows qualified users to apply for up to $5 million to cover a variety of needs, including:

  • Equipment purchases
  • Real estate purchases
  • Short-term and long-term capital
  • Construction projects
  • Business acquisitions

3. Manageable Repayment Schedules

It’s not uncommon in the small business lending sphere to find lenders that require weekly or even daily payments on a loan.

The SBA doesn’t work this way. Most payments are due on a monthly basis and can extend for years. This makes them some of the longest term loans in the industry.

While exact timelines can vary with lending terms, the following maximum repayment schedules are standard:

  • 7(a) Loans: Seven years
  • CDC/504 Loans (machinery and equipment): 10 years
  • Commercial Real Estate Loans: 25 years

These generous terms allow you to make your payments on time while growing your business steadily in the background.

4. Professional Counseling and Education

The SBA is dedicated to helping small business owners succeed. That said, many loan programs provide more than just money.

There are some that also include professional business counseling and education for new business owners. This is made possible through the SBA’s partnership with a range of career services, including business development centers and local SCORE chapters.

With these resources, loan recipients can gain access to the skills and tools they need to put their money to good use. The SBA can also put business owners in touch with personal mentors they can contact directly for advice.

5. Funds for New or Existing Business Owners

Think only new startup owners can apply for an SBA loan? That isn’t the case.

These loans are designed to support both new and existing business owners alike. In fact, the SBA requires that companies show evidence of their time in the industry before applying for certain high-dollar loans.

For instance, say you’re an established executive applying for a substantial amount of capital via a 7(a) or CDC/504 loan. In this case, you’ll need to prove that you’ve been in the business for several years before you can qualify.

At the same time, if you only need a small amount of funding, a microloan ($500 to $50,000) can help you establish your financial footing.

6. Easier SBA Loan Application Process

Small business lenders have your best interest at heart, but they’re also looking out for themselves. Taking on a new applicant is risky, especially if your company is brand-new. Ultimately, it’s easier for them to lend money to well-established businesses that have a track record of success.

As such, most banks and private lenders will require extensive application details to gauge your financial stability and future potential.

This has made it increasingly difficult for new business owners to secure the funding they need. In response, SBA loan applications are designed to be as quick and painless as possible, taking the legwork out of the process.

7. Secured Working Capital for Startup Businesses

Your monthly payments as a new business owner can feel like a mountain you’ll never be able to scale. On top of your basic operating expenses, you also need a healthy store of working capital to make key investments and important purchases for your company.

When you finance these purchases as part of an SBA loan, you set your company up for long-term stability.

Otherwise, rushing out to purchase equipment, real estate, or technology without a plan could deplete your already-precious cash savings and leave you behind from the beginning. An SBA loan can provide you with the ongoing funds you need to drive your business forward.

8. Government-Backed SBA Funding

One of the most important benefits of an SBA loan is that it’s backed by the U.S. government.

The SBA can guarantee up to 85% of the value of loans equaling $150,000 or less. The agency can guarantee up to 75% of the value of any loans equaling more than this amount.

They do so to reduce the risk of their lending partners, including banks and other financial institutions. Government loans protect such lenders against defaults on payments, which makes it easier for them to extend favorable terms and conditions to you, the applicant.

9. More Lenient Qualification Requirements

When you apply for a commercial loan, it can feel like walking through fire just to get your application in the right hands.

This is because most leaders in the small business lending space set extensive qualification requirements to pre-vet applicants. These include demonstrating that you have:

  • A certain number of years of industry experience
  • Significant assets
  • Healthy cash flows
  • Established business credit lines

Conversely, an SBA loan has more relaxed requirements in terms of both business and personal guarantee. These lenders know that you can’t show your business’ true potential until it takes off, and are willing to work with you in the interim.

That said, the three factors that an SBA lending partner will look at the most include

  • Your business and personal credit scores
  • Your years in business
  • Your cash flow

These factors hold weight in determining whether or not you qualify for an SBA loan. However, as detailed below, they are not designed to act as strikes against you.

10. An Option for Bad-Credit Applicants

Is your business credit score less than stellar? What about your personal credit score?

While most SBA lenders will check your score, they won’t hinge your entire future on the number. Instead, the agency takes a wider and more comprehensive view of your financial health.

For this reason, many business owners circle back around to SBA loans after exhausting all of their other funding options. You can learn from that ineffective approach and start here from the very beginning.

Learn More About SBA Loans Today

You deserve access to the funds you need to help your startup grow. Yet, there are many challenges that might stand in your way along your journey to the top.

Whether you’re a brand-new or well-seasoned business owner, don’t be afraid to ask for financial assistance.

Take the time to research SBA loans and fully understand the application process. Then, meet with a lender to learn more about the general terms of each loan type. Flexible, manageable and customizable to fit your needs, these could be the missing link you’ve been trying to find.

Want a quick and easy way to find relevant business loan options and connect directly with lenders? You came to the right place.

Our online application takes less than 2 minutes to complete and helps us match your business to the loan programs best-suited to help it grow. Apply today and let’s connect!