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SBA Loans: The Ultimate Guide To Qualify For Business Government Loans

SBA loans are one of the best ways to receive commercial funding. These government-backed alternatives help many small business owners fund their organizations.

This article will help guide you on everything SBA-loan related: from the different types of products available to requirements and how to apply.

Maybe a government business loan doesn’t fit your needs. Fortunately, there are financing alternatives.

Apply For A Camino Financial Loan!

 What Is An SBA Loan?

SBA loans are government-backed loans for small business owners backed and guaranteed by the US Small Business Administration.

The SBA guarantees the amount a financial institution or lender provides your business to mitigate risk; that’s why they’re so inexpensive, interest rate-wise.

Business owners can use them to buy equipment and supplies, refinance their debts, or establish a line of credit, amongst other uses.

How Do SBA Loans Work?

The SBA does not administer these loans itself; they come from banks, credit unions, or online lenders. The SBA guarantees a portion of the loan to lenders to reduce their risk.

To access SBA-guaranteed loans, you must have a good credit score and show that your company generates enough cash flow to pay your debt, among other requirements.

The amount and the interest rate will vary depending on the size and type of business, as well as other factors such as creditworthiness.

Generally, SBA loans have low-interest rates, long repayment terms, and minimal collateral requirements.

The application process is pretty straightforward and typically involves completing paperwork, providing financial documents, and undergoing a credit check. After the loan approval, the business will receive the funds within a few weeks.

SBA Loan Requirements

Eligibility

Your business must meet the following standards:

  • Be a for-profit business.
  • Be engaged in the United States or its territories; you might meet eligibility if you propose to do business in the United States.
  • Have reasonable amounts of equity to invest.
  • Use other financial resources before seeking assistance from the SBA.
  • You must be able to demonstrate your ability to repay.
  • Your business must comply with the definition of small business according to the agency’s parameters, which regulate the number of employees, annual income, and net worth of the company.
  • Have been operating for over two years.
  • A minimum personal credit score of 680, though some lenders might require a higher score, or some might be more flexible if you have a lower score.
  • A business credit score—FICO SBSS (Small Business Scoring Service)—of at least 150.
  • You might have to offer personal guarantees

#DidYouKnow Requirements can vary depending on individual lenders.

Types of for-profit industries typically eligible include:

  • manufacturers
  • retail
  • service
  • wholesale businesses
  • amongst others

Independent businesses are also eligible, provided they meet additional requirements.

#DidYouKnow While your business might be eligible, lenders will also consider personal factors in their final decision. For instance, your personal credit score is equally important as your business credit score.

Documents Needed

  • Personal information. Current and previous addresses, full name, criminal records, educational level, and the state of your finances.
  • Business information. Information about your company, like leases, certificates and licenses, certificate of incorporation (for corporations), and proof of legal structure (for limited liability companies or LLCs).
  • Industry background. You must submit your resume and business credit history to show your experience in the industry.
  • Business plan. You must attach a well-structured business plan to your application and describe the financial projections and business goals.
  • Personal and business tax returns. Submit your personal and business tax returns for the last three years.
  • Financial statements. For lenders, it is essential to have your profit and loss statements and the status of your bank accounts. This could also include balance sheets, income statements, and cash flow projections.
  • Collateral. It is not always necessary, but your application could earn points if you have collateral. If you cannot back up a loan with business assets, you can use real estate properties and personal assets as a guarantee.
  • Existing loan application history, which shows that you have tried, without success, to obtain a loan through other forms of financing, such as traditional bank loans.
  • SBA Forms (1919, 148, and 912).

#DidYouKnow Strict SBA loan requirements are due to the guarantee offered by the SBA to the banks to pay the debt in the case of non-compliance.

Remember that there is a variety of alternative lenders and specialized resources available for everyone:

How To Apply For An SBA Loan

  1. Check eligibility. Before applying, make sure that your business meets all the requirements.
  2. Identify your lender. The list of SBA-preferred lenders includes banks, credit unions, and some online lenders.
  3. Prepare the documents. Make sure that you have all the necessary documentation ready to go.
  4. Submit an application. Send your completed loan application to the chosen lender.
  5. Wait for approval. Once approved, you will receive funds in the form of a lump sum or as a line of credit that you can draw on when needed.

How Long Does An SBA Loan Take?

The process of applying for an SBA loan can take anywhere from several weeks to several months, depending on the chosen lender’s processing time and other factors.

However, if you submit the SBA express loan application for fast approval loans, you will likely receive a response within 36 hours.

How Will I Know If I Received Approval?

When the SBA approves your loan, you will receive an email describing your loan details. Additionally, your lender can help you inquire about the status.

Different Types Of SBA Business Loans

The SBA has different credit programs depending on the loan size and each business’s needs. These are the most popular government loans or SBA loans:

7(a) LOANS

SBA 7(a) loans are a standard loan program to help finance small businesses. SBA 7(a) loans offer a maximum loan amount of $5 million but require your business to meet specific qualifications to be eligible.

They are the best option for:

  • Small business owners who are handling real estate.
  • Seeking short- and long-term working capital.
  • Attempting to refinance business debt.
  • Requiring funding for purchasing equipment and supplies.

Terms and eligibility for SBA 7(a) loans involve how your business receives its income, its up-to-date credit history, and its location of operations.

Interest rates on SBA 7(a) loans vary depending on the funding your business receives. Below are examples of what to expect from interest rates should you receive SBA loan approval.

  • Loan size of $25,000 or less: base rate plus 4.25% if paid in under seven years; base rate plus 4.75% if paid in more than seven years.
  • Loan size of 25,000 to $50,000: base rate plus 3.25% if paid in under seven years; base rate plus 3.75% if paid if max rate maturity exceeds seven years.
  • Loan size exceeding $50,000: base rate plus 2.25% if paid in under seven years; base rate plus 3.75% if paid following seven years.

CDC / 504 Loan Program

CDC/504 loans provide small business owners with access to long-term, fixed-rate funding for fixed assets that benefit a company’s business growth and job creation process.

A small business owner can find these loans through Certified Development Companies (CDCs).

CDCs are community-based partners of the SBA. A CDC/504 loan maxes out at $5 million; however, some energy projects allow the borrower to receive funding up to $5.5 million per project without exceeding $16.5 million in total financing.

Repayment terms for CDC/504 loans are available with 10- and 20-year maturity terms. Interest rates on CDC/504 loans vary but are usually around 3% of the debt incurred; business owners may also finance the interest rate with the loan.

In general, business loans have repayment terms shorter than personal loans, so always stay on top of your next payment.

Business owners cannot use CDC/504 loans to fund working capital or business inventory. Additionally, you cannot use these loans for consolidating, repaying, or refinancing company debt.

Finally, business owners cannot use a CDC/504 loan for speculation or investment in rental real estate properties.

However, business owners can use a CDC/504 loan to help grow their business in some of the following ways.

  • Purchase or construction of new facilities, existing buildings, land, machinery, and equipment
  • Improve or modernize an organization’s land, streets, utilities, parking lots, landscaping, and existing facilities.

Microcredit Program

This business loan provides business financing of up to $50,000 for small businesses to start and expand their company. The typical loan amount is about $13,000.

A microloan typically requires collateral and a personal guarantee from the business owner.

With a microloan, the SBA works with an intermediary and an SBA-approved lender. Intermediaries, which describe nonprofit community-based lenders, have unique lending and credit requirements.

SBA loan terms for a microloan require that the borrower repay the amount borrowed after assessing various factors.

The amount borrowed, planned use for the funds, lender requirements and the needs of the small business all play a part in a microloan repayment plan. No matter the situation, companies must repay microloans within a maximum term of six years.

Interest rates for SBA microloans also vary depending on the unique requirements of different intermediary lenders.

Typically, interest rates fall between 8% and 13%, though checking with an intermediary lender before accepting a loan is essential.

Disaster Assistance

Small businesses, homeowners, renters, and nonprofit organizations operating in declared disaster zones might be eligible for disaster loans from the SBA.

If a declared disaster impacts your business, you can get a low-interest SBA loan approved and might be eligible to receive working capital.

Natural disasters like hurricanes that damage your property are one situation where you might consider applying for a disaster loan from the SBA.

Disaster loan types include funding for physical damages, mitigation assistance, economic injury, and military reservists for employees on active duty leave.

Disaster loans have repayment terms and are not interest-free.

Interest rates for disaster loans can be as low as 3% for businesses of any size, 2% for nonprofits, or 1.25% for homeowners and renters.

Terms for disaster loans are up to 30 years, and loans under $25,000 do not require collateral.

CAPLines Program

CAPLine loans are a loan program that helps small businesses meet short-term and cyclical needs to fund working capital with up to $5 million.

These loans are lines of credit for small businesses with requirements similar to basic SBA 7(a) loan requirements.

The CAPLine program has four types to suit your organization’s unique needs.

  • Seasonal CAPLine loan. They require borrowers to use their funds to finance seasonal increases in their small business, such as accounts receivable and inventory. Sometimes, business owners can use a seasonal CAPLine loan to help fund increased labor costs.
  • Contract CAPLine loan. A contract CAPLine loan finances labor for your small business and the costs associated with labor contracts.
  • Builders CAPLine loan. This loan can finance labor and associated material costs for general contractors or builders constructing or renovating properties. The building construction project acts as collateral.
  • Working CAPLine. This revolving line of credit is asset-based for small businesses that cannot meet current credit standards. You repay this loan by converting a company’s short-term assets into cash paid to the lender. It lets businesses regularly withdraw from their credit line but requires collateral, and companies might incur additional fees from the lender.

Import And Export Loans

With these loans, you can pay for materials, inventory, or the production of export goods. The SBA offers these loans in conjunction with specialized commercial credit centers.

infographic of SBA loan programs

Camino Financial: A Fast And Reliable Alternative

As you can see, getting a small business government loan can be difficult. If you meet the SBA requirements and have the time and patience to do the paperwork, this may be a good option to finance your venture.

But if you have a business opportunity that can not wait and you need fast financing, there are other reliable alternatives to make your business dreams come true.

At Camino Financial, we can help you finance your business goals: you can get from $5,100 to $35,000.

There are many advantages to our small business loan compared to others available in the market:

  • You can pay at any time without additional penalties or fees
  • No need to present collateral
  • Instant prequalification most of the times
  • You can apply with an ITIN if you don’t have an SSN

If you want to receive a quote, simply submit an online application. It will only take you a few minutes.

Apply now!

 

FAQs

What is the Small Business Administration?

SBA stands for Small Business Administration and is a federal government agency in the United States that provides financial assistance to small businesses through different credit programs adapted to every entrepreneur’s needs.

What SBA products can one use as commercial real estate loans?

You can’t use all government-backed loans for real estate because each has different rules for using loan proceeds.

The SBA’s 7(a) Loan Program is the most popular option to finance real estate, providing up to $5 million in financing with extended repayment terms of up to 25 years.

What is the easiest SBA loan to get approved for?

The easiest SBA loan to get approved is a 7(a) loan.

This type of SBA loan has the most flexible terms for businesses that need working capital for start-up costs, debt refinancing, or business expansion.

How easy is it to get an SBA loan?

The loan application process can be challenging and time-consuming, plus the requirements tend to be quite stringent. That said, if your business has strong finances and a solid business plan, you may have a good chance of obtaining an SBA loan.

What credit score do you need for an SBA loan?

The minimum credit score required for an SBA loan depends on the type of loan you are applying for.

  • SBA 7(a): 680
  • Community Advantage Program: 660
  • Microloan: 620

It is important to note that these requirements may vary depending on the lender and other factors, such as your business’s industry and financial situation.

What disqualifies you from getting an SBA loan?

If your business has been in operation for less than two years or is not “small” according to the SBA’s guidelines, you may not qualify.

If your credit score is too low, or you have had difficulty managing your finances in the past, this could also disqualify you.

Can a lender not approve an SBA loan?

Yes, lenders can deny an SBA loan for a variety of reasons.

Generally, the Small Business Administration and its lending partners consider the applicant’s credit score, repayment ability, collateral security, industry risk, management expertise, and revenue when deciding whether to approve or deny a loan.

What happens if you don’t meet the SBA’s requirements?

You can wait and try to reapply again when you’ve strengthened your business.

If you can’t wait, there are other alternatives with easier-to-meet requirements, like Camino Financial.

 

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