Perhaps no loan is more sought-after than the SBA loan. Partially guaranteed by the government, SBA loans are long-term loans that can be used for virtually any purpose. When it comes to rates and terms, it’s hard to find a more favorable loan option.
The SBA provides guarantees to participating lenders in order to mitigate their loss risk. This allows banks and other lenders to make loans to small businesses that otherwise wouldn’t be able to qualify.
Here’s everything you need to know about why SBA loans are an ideal funding source for business owners and who qualifies for an SBA loan:
What makes SBA loans so good?
Loans backed by the SBA offer a range of loan sizes, longer repayment terms, and most importantly, reasonable interest rates.
Compared to short-term funding options, such as invoice financing or factoring, your APR is generally much lower. Compared to even traditional term loans, which have interest rates ranging from 7–30%, SBA loans are much more affordable.
On top of that, the amount you can get ranges from $5,000–$5 million, ensuring you can take exactly what your business needs. The money can be used for virtually any legal business need, from seasonal inventory and payroll to
SBA loans typically range from 5–25 years. Even though SBA-backed loans exist in order to give small business owners more access to financing—these loans are still competitive.
Generally, your business must be able to adequately service the SBA loan and all other debt obligations from the cash flow of the business operations and borrowers will be evaluated on a case-by-case basis. Lenders will typically require the following criteria but it’s important to note that all applicants will be reviewed on a case by case basis:
- At least two years in business
- A credit score of 620 or higher
- More than $100,000 in annual revenue
Again, these are requirements that Fundera has seen, but there are certainly exceptions.
The SBA will look at management experience, and consider the borrower’s credit history, if any, but a strong borrowing history is not a requirement. The applicant must demonstrate adequate cash flow necessary to meet the debt service requirements of the loan and all other financial obligations of the business.
In terms of the application process itself, you are typically required to submit a business plan along with financial documents, including but not limited to:
- Personal and business tax returns
- Profit and loss statements
- Bank statements
- Balance sheet
However, it’s important to note that this will depend on the type of SBA loan you’re applying for.