The U.S. government depends on small businesses to be the engine for the economy. Banks need to make smart loans. And, small business owners need capital to grow. Put the three together, and you get the formula behind SBA loans. Businesses field opportunities, bankers advise them on putting capital to work and the SBA builds programs to guarantee additional risks.
See how business owners can accept attractive financing to grow their businesses and fulfill the U.S. government’s policy goal of generating overall economic and employment growth.
SBA versus conventional loans
Small business owners can’t take on the same level of risk that better resourced and diversified companies can absorb. The SBA steps in to share and support risk for smaller businesses, giving business owners access to market opportunities for improvement, growth, and restructuring that are not always available with conventional loan products. SBA loan programs are designed for greater lending flexibility to a broader range of companies.
Comparison of SBA Loans to Conventional Loans
The breadth of SBA programs
SBA programs provide several loan programs to meet various needs:
- SBA 7(a) Program. The most popular loan product is the flexible, SBA 7(a) Program. It can be used for a wide variety of financing needs, e.g., growth, acquisition, restructuring, etc. Loans up to $5 million are possible with down payments as low as 10 percent.
- SBA 504 Program. The 504 program is typically used for commercial real estate and large equipment transactions. Both fixed and variable rates are available. Loans terms may extend up to twenty-five years. Capital plans that include two uses for capital (one real estate and the other equipment, acquisition, etc.) can sometimes combine the 504 with the 7(a) to access greater amounts of capital.
- SBA Express Programs. The Express programs provide shorter-term working capital and asset needs through a streamlined process. The Export-Express program is designed for companies with existing exports or the goal to begin exporting to other countries.
- SBA Specialty Programs. SBA includes programs for disaster recovery loans and other special focus programs.
Bank expertise with SBA
Banks add their own stamp to the delivery of SBA loans, and some make SBA lending a cornerstone of their small business services. Few owners can afford the time and patience to deal with banks that don’t regularly handle SBA loans, and no business wants to lose financing by choosing a weak SBA lender. For a smooth application process and best chance for success, ask the following questions of your bank:
- What dedicated resources do you offer for processing SBA applications?
- How many SBA loans (and for how many dollars) has your bank successfully closed in the past 12 months?
- Which SBA programs have you successfully closed in the past year?
- What requirements does your bank add to the SBA parameters for loans?
A few phone calls and research can ensure you don’t waste your precious time with an inexperienced SBA lender.