What Is an SBA Loan and How Does It Work? A Guide
What is an SBA loan exactly? Keep reading to learn more.

What Is an SBA Loan and How Does It Work? A Guide

Are you a small business owner seeking additional funding for your growing company?

If so, then you may qualify for an SBA loan. This is a type of loan partially backed by the U.S. Small Business Administration, designed to help people just like you secure the financial resources they need. 

If you're new to this space, you might be wondering "What is an SBA loan and how does it work?" Today, we're breaking down the details. Read on to learn everything you need to know about the different types of SBA loans, what they provide, and how to apply. 

What Is an SBA Loan? The Basics to Know

An SBA loan is a type of financing designed specifically to support small businesses. A private lender will issue the money, but it's backed by the federal government. 

Business owners can use these loans to cover a variety of business-related expenses. The specific types of expenses you'll be able to cover depend on the type of SBA loan you acquire. 

Types of SBA Loans

The five main SBA loan types include:

  • SBA 7(a) Loans
  • SBA 504 Loans
  • SBA Express Loans
  • SBA Microloans
  • SBA Disaster Loans

Let's take a look at each one in greater detail.

SBA 7(a) Loans

This is the SBA's most prevalent loan program. A 7(a) loan can go up to $5 million and is designed to help small businesses that meet certain special requirements. Before approving this loan, the SBA will evaluate the following factors:

  • What your business does to receive income
  • Your business' credit history
  • Where your business operates

If approved, you can use an SBA 7(a) loan to cover the following expenses for your business: 

  • Short-term and long-term working capital 
  • Existing business debt refinancing
  • Furniture, fixtures, supplies 

SBA 504 Loans 

Business owners can apply for an SBA 504 loan to purchase or repair major fixed assets. This is a type of long-term real estate loan that can go up to $5 million. 

To qualify for a 504 loan, you will need to verify that your business meets the following qualifications:

  • Operates as a for-profit company
  • Operates in the United States or its territories 
  • Has a tangible net worth of no more than $15 million
  • Has an average net income that doesn't exceed $5 million after federal income taxes (for two years prior to applying) 

SBA Express Loans

SBA Express loans can provide up to $500,000 for a small business. They're designed for business owners who need quick access to fast funding. If approved, you can use this type of loan to cover the following types of expenses:

  • Business expansions
  • Equipment purchases 
  • Real estate purchases 
  • Working capital 

To qualify for an SBA express loan, your business must meet the following criteria:

  • Meet the SBA's definition of a small business
  • Operate in the United States or its territories as a for-profit business
  • Have the ability to invest a reasonable amount of owner equity
  • Have existing financial resources (e.g. personal assets) already invested

SBA Microloans

This is the smallest loan program that the SBA offers. Under it, business owners can receive up to $50,000 to help their company get up and running or expand. 

You can use an SBA microloan to rebuild, re-open, repair, enhance, or otherwise improve your small business. Intermediary lenders will set their own qualification guidelines to determine eligibility. 

SBA Disaster Loans

SBA disaster loans can provide up to $2 million. Business owners can use them to make necessary repairs if their operations were impacted by a natural disaster or crisis. Within this category, there are a few different types of loans, including:

  • Paycheck Protection Program (PPP) loans
  • Economic injury disaster loan emergency advances
  • Economic injury disaster loans 
  • Business physical disaster loans

Benefits of SBA Loans

Why apply for SBA loans as opposed to another type of small business financing? Let's review a few of the benefits.

Competitive Terms

Most SBA loans have rates and fees that are generally comparable to non-guaranteed loans. They carry interest rates that are based on the prime rate, plus an additional markup known as the "spread". In addition, most also carry longer repayment terms. 

Flexible Guidelines

A majority of SBA loans will include built-in features that make it easy for business owners to access them. From lower down payments to flexible overhead conditions, you'll find that these are usually quicker and easier to pursue. You may even be able to pursue some loans without putting up any type of collateral. 

Ongoing Business Support

Some SBA loans will also include access to professional counseling and education services. These experts can help new business owners navigate the ins and outs of starting and running their businesses. 

Applying for an SBA Loan

If you're ready to apply for an SBA loan, here are the steps to follow.

1. Ensure Eligibility

Your first step is to make sure your business is eligible to receive an SBA loan. In addition to the specific eligibility guidelines detailed above, most lenders will need to verify that your business meets the following basic conditions:

  • Has been operating for at least two years
  • Has a strong annual revenue 
  • Has a good credit score 

2. Prepare Your SBA Application Documents

You'll need many different documents when it's time to apply for your loan. The SBA breaks down the full list on their website. In addition to your tax returns (business and personal) and business records, you'll also need to supply other forms, such as:

  • Your business license
  • Personal financial statement
  • Statement of personal history
  • Official SBA Borrower Information form
  • Cash flow projection (one year)

3. Find an SBA Lender

Once you have all of your documents in place, you can start looking for a lender. We're here to make this step as easy as possible. Triad Bank makes the process of applying for a business loan simple and straightforward, so you can get started right away. 

4. Get Approved

Once your lender reviews your application, they will inform you of your lending eligibility. If you're approved, they'll walk you through the next steps required to access and start using the funds. 

Learn More About Business Banking Today

At Triad Bank, SBA loans are our specialty. Since 1983, we've focused on the people and the businesses that keep Oklahoma thriving. If you're asking, "What is an SBA loan?" we'd be happy to tell you more.

First, we'll take the time to thoroughly understand your unique needs. Then, we'll walk you through your available loan options and help you get started. Reach out to our team to learn more. 

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