What is a Small Business Administration Loan?

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A Small Business Administration loan is a loan that is underwritten by the federal government and partially guaranteed by the Small Business Administration. The purpose of all Small Business Administration loans is to help entrepreneurs start, grow, or improve their businesses. If you are a small business owner and you are interested in learning about loan amounts, loan terms, interest rates, and eligibility requirements, here is what you need to know.

The Small Business Administration Has Several Loan Programs

While the General Small Business Loan is the most popular option, the agency offers small business owners access to several different SBA programs that can be used in very specific situations. The agency’s 7(a) loans are funded by banks, credit unions and other specialized lenders who meet the requirements that are written out in the Code of Federal Regulations. Other loan programs that might be funded by the agency itself include:

  • Microloan Program
  • Real Estate and Equipment Loans
  • Disaster Loans
  • Exporting Loans

How Much Can You Borrow?

Every loan program has its own limits and eligibility requirements. How much you can borrow depends on several different factors. Some of these factors include time in business, loan purpose, creditworthiness, annual revenue, industry and how much invested equity you have in the business. In general, loan amounts range between $5000 and $5 million.

How Much Do SBA Loans Cost?

The cost of your small business loan is directly dependent on the type of loan program that you qualify for and the interest rate structure. For a 7(a) loan, the bank can charge a guaranty fee of up to 3.5% of the dollar amount guaranteed for loans in the amount of $700,000 or less. In addition to this fee, borrowers will be charged either a fixed or variable interest rate that is between six and 13%. There are no fees for microloans that is to be paid within six years.

How Long Do You Have to Repay Your Loan?

Your repayment terms through the Small Business Association are dependent on the purpose of the loan. If you are using the loan to get working capital, you will have up to seven years to pay back the loan amount. Equipment loans have repayment terms as long as 10 years. The longest repayment term is 25 years which is for commercial real estate. To get the longest repayment term available you will probably have to put up some collateral.

What Are the Eligibility Requirements?

Many businesses, even newer ones that do not yet have a proven track record, can qualify for one of the many types of SBA loans that are available. Some of the eligibility guidelines that all businesses must meet include:

  • Must be a for-profit company
  • Must do business in the U.S.
  • Must be defined as a small business
  • Must use the funds for business purposes
  • Must have used alternative forms of funding before asking for a loan
  • Must have invested equity

Related Resource: What is the R&D Tax Credit?

Small Business Administration loans offer very low down payments, long repayment terms, and reasonable interest rates. If you are willing to fill out loads of paperwork and wait for longer approval times, this could be the right funding option for your business. Consider your alternatives and make sure that you really need the Small Business Administration Loan before you apply.

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