In a nutshell: Take the first steps toward securing a SBA for your small company.

You’re a small business owner (or soon-to-be) but you need additional funding to get your company where you want it to be. Not sure where to start? The U.S. Small Business Administration (SBA) can give you all the information to point you in the right direction.

While the SBA does not issue loans itself, it guarantees loans by private organizations and other institutions, reducing the risk to the bank.

You may wonder why you should apply for loans guaranteed by the SBA rather than pursue standard business loans. There are several advantages that you should consider, according to U.S. Bank. SBA loans typically have lower down payments (up to 90% financing) and longer repayment terms (up to 25 years), which free up cash flow for your operational expenses. Other benefits include loans up to $11.25 million, no balloon payments and fixed and variable rate options.

As detailed at sba.gov, there are four different SBA-guaranteed loan programs you should be aware of:

  • 7(a) Loan: This is the most flexible option to borrow money for general business purposes. Start-up and existing small businesses that may not be eligible for standard business loans may get funds through this program.
  • CDC/504 Loan: This option provides long-term, fixed-rate financing for fixed assets, such as real estate or equipment. It can be used for expanding or modernizing.
  • Microloan: Small businesses and certain non-for-profit childcare centers can receive a small, short-term loan to start up and expand.
  • Disaster Assistance Loan: This program provides low-interest loans to help fix or replace real estate and other business assets that may have been damaged in a declared disaster.

Get Ready to Apply 

Before you decide an SBA loan is the best option for you and your business, you should assess your current financial situation. This will help you not only determine the nature of your financial need but also encourage you to take an in-depth look at how your company will prosper from the loan. Understanding some basics, like whether you need more capital to boost your existing cash flow and how urgently the money is going to be needed, will be helpful when talking to a loan officer. In fact, all lenders will want to see a well-thought-out business plan that takes into account the loan for which you’re applying. It is important to have a solid understanding of your risks, your company’s state of development and the state of your industry before committing to a financial obligation.

According to the SBA, many loan programs will ask for similar information. Therefore, you should be prepared with the following basic documentation before applying:

  • Personal background information (including criminal record and educational background)
  • Resumes
  • Business plans
  • Personal credit report
  • Business credit report
  • Income tax return
  • Financial statements
  • Bank statements
  • Legal documents (including business licenses and registrations, articles of incorporation, third-party contracts, franchise agreements and commercial leases)
  • Collateral (depending on the loan program)

Be sure you can tell loan officers why you’re applying for the loan, how you will use it, what assets need to be purchased and what other business debt you have. They will ask.

With your financial assessment complete and your documentation gathered, you’re ready to sit down with a lender to discuss an SBA loan. According to SBA’s “Who’s Lending? How to Find Small Business-Friendly Banks,” you should first seek out certified or preferred lenders for SBA loans. Community banks have increased their lending to small businesses and therefore are a good option. Contacting your local SBA office may provide you with the most accurate and updated list of financial institutions providing SBA-guaranteed loans in your area.

Regardless of the lender you choose, the criteria considered when reviewing loan applications is similar. Your eligibility for an SBA loan will be based on several factors, including equity investment, earnings requirements, working capital, resource management and collateral. It’s important to have a good handle on these factors before taking on a financial obligation.

It’s not always easy to make a small business thrive — there’s no doubt that it’s challenging and requires a lot of hard work and dedication. With this foundation of knowledge about SBA loans, you’re taking a good first step on your way to making your business aspirations come true.

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