Five Things to Know About SBA Loans

A SBA loan may provide small business financing for your company. Here are five things to keep in mind about SBA financing.

1. Funds are not received directly from the SBA

“SBA loans”  are often interpreted to mean that the government is directly lending to entrepreneurs. However, that is not the case. Instead of directly funding the loan, the SBA partners with financial institutions to provide supplemental credit. There are some SBA loans that include a guarantee of up to 90 percent of the principal borrowed amount. Although underwriting standards do apply, the guarantee provided by the government reduces the bank’s risk.

2. If You May Qualify for an SBA Loan Even If You Are Not Eligible for a Traditional Loan

SBA loans eligibility requirements can be a little more flexible as opposed to conventional business loans, according to experts. Interest rates on SBA loans are competitive to conventional loans.

3. There Are Many Types of SBA Loans

Prior to applying for an SBA loan, analyze your financial needs. Is it for capital? Keeping up with cyclicality or seasonal needs? A new location? Lenders will need to understand the reason you are seeking funds. Furthermore, the reason will determine which loan is most suited for your financial situation.

4. SBA Loan Documentation Requirements Are Similar to Those of Traditional Loans

You will be required to submit the same type of documentation when you are a requesting a traditional loan as you would when applying for a SBA loan. You will need to have:

  •  three years of financial statements
  •  business tax returns
  • personal tax returns.
  • track record of business operations and a documented financial history.

Not only do small businesses have to meet underwriting standards for an SBA loan, they have to also adhere to size standards. Such limits impose restrictions how large a business can be to be eligible for assistance from the SBA. These parameters also vary by industry.

5. There is a Possibility that you may Default on your Business Loan

Sometimes businesses go through bad patches that may result in missing payments on your SBA loan. If you have found yourself in an unfortunate position where you cannot keep up with your payments, there are options available to you. You may enter into debt settlement talks or negotiate the terms of your agreement. If all else fails, you have the option to file a Chapter 11 bankruptcy.