HOW SBA LOANS WORK

The Small Business Administration (SBA) is a federal agency dedicated to helping entrepreneurs improve their small businesses, take advantage of contracting opportunities, and gain access to small business loans.

However, one common misconception is that SBA lends money to businesses. For the most part, that’s not true. The agency does not directly lend money to businesses. You actually get an SBA loan from a bank that participates in SBA financing. The SBA guarantees a percentage of those loans to the banks, so financial institutions have more incentive to lend money to small businesses.

Because of this guarantee, bankers may be more willing to lend you money even if you don’t fit their strict credit criteria. But at many major banks, getting an SBA loan can still often be a complex and lengthy process that can take several months. Lenders will want to review your credit and financial statements and expect you to have collateral to secure the loan. So even with the government guarantee, many small businesses may not qualify for SBA financing.

If you would like to apply for an SBA loan, expect to complete an extensive loan application, plus provide documents such as financial statements, information on your collateral, a description of your business, and a statement of how you’ll use the loan proceeds. They will look for applicants with good credit, a solid business plan, collateral, and a demonstrated ability to repay the loan.

You’ll also have to choose which SBA loan program you’d like to apply to. The most popular programs are the SBA 7(a) loan which can be used for many general business purposes and the CDC/504 loan, which is most often used to purchase major fixed assets such as equipment and commercial real estate.

If you are unsure which program is right for you, the professionals at Arriba Capital can walk you through your options and help you quickly determine if you might qualify for an SBA loan.