Need Funding for Your Small Business? SBA Loan Programs Might Be the Answer


Need Funding for Your Small Business? SBA Loan Programs Might Be the Answer

Securing funding can be a challenge for a lot of small business owners, especially those just starting out. The U.S. Small Business Administration offers an SBA-guaranteed loan for small businesses unable to get the funding they need through a traditional bank loan.

Learn more about SBA-guaranteed loans and how they can help your new or growing business.

A lack of capital is one of the biggest barriers to an entrepreneur pulling the trigger on a new business venture, or for a small business owner looking to take their business to the next level. Because insufficient capital is such a common challenge, it’s also common for business owners to take out loans to get the cash they need to launch or grow. If your fall into this category but are having trouble getting financing, applying for a loan through the U.S. Small Business Administration’s Loan Program may be a good next step.

The SBA Loan Program Can Help You Secure the Financing You Need if a Lender Won’t

Lenders assess the risk of a potential borrower and the borrower’s business before deciding to grant a loan. If you’ve been hit by poor credit in the past or have limited credit, you may have a difficult time obtaining the funding you need. That’s where the SBA Loan Program comes in. Through the program, businesses can receive an SBA-guaranteed loan. The SBA does not lend money directly to small business owners. Instead, it acts as an intermediary between the lender and the borrower to facilitate the loan. The SBA’s backing creates less risk on the part of the lender, making them more willing to lend.

SBA-guaranteed Loans Give You Multiple Borrowing Options and Benefits

Loans guaranteed by the SBA come in a couple of different forms. The most common is the 7(a) loan. With the 7(a) loan, a business can borrow a maximum of $5 million. These loans guarantee up to 85% of the amount borrowed if you’re borrowing $150,000 or less. If you’re borrowing more, the SBA guarantees up to 75%. This makes you a much more attractive borrower to a bank. The funds borrowed through a 7(a) loan can be used for working capital, expansion, and equipment purchases. Microloans are another type of SBA-backed loan. These loans cap borrowing at $50,000. The capital your business receives through an SBA-guaranteed microloan can be used in a variety of ways, including working capital, inventory, equipment, and starting a business.

Unlike a bank that simply writes you a check then charges you payments with interest, an SBA loan comes with a few added benefits.

  • Competitive Terms: Because the lender knows the loan has the SBA’s backing, SBA-guaranteed loans typically offer competitive terms.
  • Education: If eligible, your loan may come with support beyond financing. The SBA will set your business up with resources and support to help you start and manage your business.
  • Lower Rates: SBA-backed loans usually offer lower down payments and longer repayment terms with lower rates compared to conventional loans.

SBA Loan Repayment Relief in Times of Crisis

Currently in 2020, with so many businesses facing financial difficulty as a result of the COVID-19 pandemic, the SBA has ramped up its debt relief programs for small businesses. As a part of the SBA’s coronavirus debt relief effort, the administration is paying six months of principal, interest, and any associated fees that SBA-guaranteed loan borrowers owe. If your business is currently considering a loan, the SBA is also providing this relief for some new loans. According to their website, for those loans made after March 27, 2020, and fully disbursed prior to September 27, 2020, the SBA will begin making payments upon the first payment due on the loan, making six monthly payments total. Read more to see if your business is eligible for SBA Debt Relief.

Find a Lender Through the SBA

The first step to securing an SBA-guaranteed loan is to find a lender by filling out the SBA’s Lender Match Form. Within several days, interested lenders will contact you to fill out a loan application and guide you through the lending process.

Explore Your Options and Compare Rates and Lenders to Find the Best Loan for Your Small Business

As you work to understand your business’ financing options, it helps to have someone you trust by your side, like a SCORE mentor, to help you explore options and choose the right lender. A SCORE mentor will support you through the entire loan process, from research to application to finally getting the capital your business needs. Contact a SCORE mentor today.

Yusef Muhammad
Southwest Regional Vice President, SCORE
Since 1964, SCORE “Mentors to America’s Small Business” has helped more than 11 million aspiring entrepreneurs and small business owners through mentoring and business workshops. More than 10,000 volunteer business mentors in over 250 chapters serve their communities through entrepreneur education dedicated to the formation, growth, and success of small businesses. For more information about starting or operating a small business, call 1-800-634-0245 for the SCORE chapter nearest you. Visit SCORE Funded in part through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, conclusions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.