Benefits of SBA Loans

Loans guaranteed by the U.S. Small Business Administration (SBA) can be a great solution for some business owners. Here are some of the key benefits:

Can Be Easier to Qualify

SBA loans are provided by approved lenders who partner with the SBA. The SBA guarantees a significant portion of the loan, reducing the lender’s risk and making it easier for businesses to qualify, even if they have been turned down by other lenders.

Flexible Loan Uses

SBA loans can be used for a variety of purposes, including:

• Starting a business
• Buying a business
• Purchasing land or buildings
• Working capital
• Buying equipment, machinery, supplies, furniture, inventory, and fixtures
• Expanding or renovating a building
• Refinancing existing debt

Wide Range of Loan Amounts

The SBA offers several loan programs, such as the 7(a), 504, and microloans, with financing ranging from $500 to $5.5 million, depending on the loan type.

Interest Rates Are Capped

SBA loans may have fixed or variable interest rates, which are capped by the SBA. This ensures that the interest rates remain competitive and fair.

Long Repayment Terms

SBA loans offer longer repayment terms compared to other business loans, with terms ranging from 10 to 25 years, making it easier for businesses to manage their cash flow.

Downsides of SBA Loans

While SBA loans have many benefits, there are also some downsides to consider:

Complicated Application Process

The application process for SBA loans can be time-consuming and requires extensive documentation, including business plans, financial statements, and legal documents.

Slow Loan Approval and Funding

Approval for SBA loans typically takes 60 to 90 days, and funding can take even longer. If you need money quickly, this may not be the best option.

Good Credit Required

Both your business and personal credit scores are evaluated when applying for an SBA loan. Generally, a personal FICO® Score of at least 640 is required, with higher scores being preferable.

Eligibility Requirements

To qualify for an SBA loan, your business must meet specific criteria, including being based in the U.S., operating for profit, and meeting SBA size standards.

Collateral and Personal Guarantee

Most SBA loans require collateral and a personal guarantee from anyone with 20% ownership or more in the business. This means that personal assets may be at risk if the loan is not repaid.

Should I Get an SBA Loan?

Deciding whether to get an SBA loan depends on your specific needs and circumstances. Consider an SBA loan if:

• You’ve been turned down for a business loan from a bank.
• You can wait several months for loan approval and financing.
• You and your business have good credit scores.
• You meet SBA criteria and have the necessary documentation.

An SBA loan may not be the best fit if:

• You need money quickly.
• Your personal and business credit scores are fair or poor.
• You have no collateral.
• You prefer not to personally guarantee a loan.

Alternatives to SBA Loans

If an SBA loan isn’t the right fit for your business, consider these alternatives:

Business Credit Card

A business credit card can finance smaller purchases and help build your business credit history with timely payments.

Business Line of Credit

A business line of credit offers revolving credit, allowing you to borrow up to your credit limit and pay interest only on the amount borrowed.

Online Lenders

Online lenders offer business loans with less stringent requirements, streamlined application processes, and faster approvals. These loans typically range up to $250,000 and are repaid over six to 24 months.

Crowdfunding

Use crowdfunding platforms to raise money for a startup or new product. Some platforms gather loans from individual investors, while others collect donations in exchange for early access to your product.

Equipment Financing

Equipment loans use the equipment you purchase as collateral, making it easier to obtain financing without additional collateral.

Trade Credit

Vendors may extend trade credit, giving you 30, 60, or 90 days to pay for inventory or materials. Timely payments can help build your business credit history.

Invoice Financing

Sell unpaid accounts receivable to a factoring company for an upfront percentage of the invoice. The factor collects the rest and pays you, minus fees and interest.

Merchant Cash Advance

Receive cash advances against future credit and debit card revenues. This high-interest option requires daily or weekly payments.

The Bottom Line

When applying for any business loan, start by checking your business credit report and personal credit score. If your scores aren’t up to lenders’ standards, work on improving them by paying down debt and making timely payments.

For expert mortgage services, contact O1ne Mortgage at 213-732-3074. Our team is ready to assist you with all your mortgage needs and help you find the best financing options for your business.