SBA LOANS – HOW THEY CAN HELP GROW YOUR BUSINESS
At Syntegric Advisors, we’re often get asked – how can I qualify for an SBA loan? The US Small Business Administration is devoted to assisting small businesses in their quest for growth and job creation. One of their main tools is SBA loans (also known as Small Business Administration loans). We’re going to discuss what SBA loans are, how you can apply for one, and the process that’s involved in securing and maintaining an SBA loan.
WHAT IS AN SBA LOAN?
The US Small Business Administration as several different programs for various kinds of business. The flagship of their system is the 7(a) Loan Guarantee Program.
7(a) Loan Guarantee Program
This program partners with various banks and non-bank lending institutions to make capital available to small businesses. The 7(a) program guarantees up to 85% of the loan provided through an SBA approved lender (provided the applicant meets application requirements). It offers up to $5 million in funds that are federally guaranteed.
The other SBA loan programs are:
504 Loan Program
WHO QUALIFIES FOR AN SBA LOAN?
Many small businesses qualify for SBA financing. The most important factor in qualification is credit score. The SBA and its partner banks want to only lend to businesses that have proven business models, responsible practices, and that are in need of capital to grow. The requirements usually include:
A credit score of at least 680
Over $200K in yearly revenue
A history of business of at least four years
The SBA loan process is not a quick one. Your books will need to be inspected as part of the approval process. SBA loan approval usually takes at least 1 month to carry out.
HOW DO YOU APPLY?
SBA loans are usually applied for through partner banks and credit unions. Many banks will have officers who deal specifically with SBA loans. Here at Syntegric Advisors, we also offer corporate finance consulting that can help throughout the application process.
We also recommend reaching out to the SBA itself via the SCORE mentorship program. SCORE offices work with local small businesses and provide mentoring, networking and support for tax services, business planning, marketing and all manners of support that a small business may need. They can also recommend partner banks and help you connect with individuals who have been through the process before.
HOW DO SBA LOANS WORK?
Let’s first clear up two common misconceptions that surround SBA loans –
“The SBA directly loans funds to small businesses.”
This is incorrect. The SBA instead loans cash through partner banks and lending not-for-profits, who handle the administration of SBA loans. The SBA offers up to $5 million in funds that are partially federally guaranteed.
“Hardly anyone qualifies for SBA loans.”
This is also incorrect. In 2017, the SBA loaned out $9.5b BN to various partner institutions. SBA loan volumes have also shown a continuing steady increase over the course of the decade.
What is important to understand is that SBA loans usually take longer to apply for, and the SBA and lender bank’s analysis of your business will take longer than what is typical for a standard commercial loan. But if you’re patient, the process can pay off handsomely. Rates average between 7.25% and 9.25% for a typical SBA 7(a) loan, assuming a prime rate of 5%, as of 2019. Base rates for loans usually vary between 2.75% and 4.75% plus Prime for 7-year term loans. SBA 7(a) loans can be used for capital expenses and most business expenses, either in terms of meeting operations costs or engaging in capital investment. Most SBA loan terms are long term and generous, which is why they are so popular.
WHAT WILL AN SBA LOAN COST YOU?
Something to bear in mind is that the rates quoted above do not represent your entire APR. The SBA itself usually imposes fees such as the guarantee fee (which is 2% of the guaranteed loan amount for loans under $1 Million, or 3.75% for loans over that amount) The participating bank may also impose various service fees and charges. Make sure to take all this into consideration and consult with your accounting firm or tax accountant when deciding if an SBA loan is right for you.
READY TO APPLY? LET US HELP.
Here at Syntegric Advisors, we’ve provided many business owners with SBA loan assistance. We’ll be happy to answer your questions, look at your business, and help you decide if an SBA loan makes sense for you. We provide a full suite of tax and accounting services that can be customized to fit the exacting needs of your firm. Contact us today by phone at 626-475-2999 or email us via firstname.lastname@example.org.