Running a small business has many obstacles, one of which is the availability of capital. There are many funding types, but they are often out of reach for small companies or those just starting. The Small Business Association aims to help organizations flourish by working with banks to minimize lender risks. SBA loans give you options you would not have otherwise.
When your organization needs a large amount of capital, this type of government-backed lending is an excellent option to secure the necessary funds. You may not qualify for as much money through traditional methods, but the SBA works with banks to guarantee the loan amounts. The financial institutions assume less risk, making them more willing to provide larger amounts.
A loan backed by the SBA typically requires a down payment. However, it is usually lower than other loan types at around 10% of the amount borrowed. Traditional funding terms average about 20% down.
The following types of SBA lending do not usually need a down payment:
The rate on your loan depends on your unique qualifications and credit scores. However, interest rates for SBA loans are much lower than traditional lending choices. The SBA sets lender guidelines intended to keep borrowing costs low for small-business owners. Financial institutions may offer fixed or variable rates depending on the agreement terms, but the SBA caps the maximum spread your bank can charge, keeping your expenses low.
Loans of this type offer the most extended repayment terms. Whereas other alternatives require repayment of the principal amount borrowed within months to five years, SBA backed funding offers much longer timeframes.
With this type of borrowing, you can use the money for many purposes. You need to present a detailed use plan to your lender to qualify, but you have some flexibility to spend it as needed when things come up in the future due to the broad terms. However, some specific types like micro-loans have detailed requirements regarding funds use.
SBA loans help you establish and grow your company by providing vital advantages you cannot obtain via other methods.