Small business owners often turn to U.S. Small Business Administration (SBA) loans to secure funds, with loan amounts spanning from $500 to $5.5 million. The appeal lies in the range of loan options and the relatively high approval rates. In 2021, SBA loans saw an approval rate of 65%, surpassing the 57% for business loans and 43% for personal loans.
Selecting an SBA Loan
Understanding and selecting the right SBA loan can initially seem complex due to the three loan types, each with its own requirements and restrictions.
What are SBA Loans?
Often referred to as SBA loans, these loans are backed by the SBA. However, one must apply through approved third-party lenders. These financial institutions partially guarantee SBA loans. The SBA directly provides disaster relief loans, but SBA-backed loans involve third-party lenders.
Eligibility Criteria
To pursue a SBA loan, you must meet three sets of eligibility criteria:
- General SBA eligibility requirements, include operating a for-profit business in the U.S., investing personal assets in the business, and seeking alternative financing sources.
- Lender-specific eligibility requirements vary among lenders and consider business-related data, collateral, and credit scores.
- SBA-loan-specific eligibility requirements are unique to each loan type.
SBA 7(a) Loans
The SBA’s 7(a) loan program is the most popular, granting over $36.5 billion to small businesses in 2021. In contrast, microloans granted $8.2 billion for 504/CDC loans and $71.8 million.
SBA 504/CDC (Certified Development Companies) loans
The 504/CDC loan is ideal for acquiring long-term financing at a fixed rate to purchase fixed assets. These loans are available through nonprofit Certified Development Companies (CDCs).
SBA Microloans
The SBA microloan program, facilitated by nonprofit community-based organizations, supports various business needs, with loans up to $50,000. Approximately 4,400 businesses benefited from this program in 2021.
Applying for an SBA loan:
- Decide on the loan type.
- Find lenders offering the chosen loan through the SBA’s Lender Match tool.
- Compare terms and eligibility.
- Apply through the selected lender.
Considering the variety of loan programs and competitive rates, SBA loans can effectively alleviate cash flow issues and help your business achieve its objectives.
Choosing the Right SBA Loan for Your Small Business (thehartford.com)
