You can narrow down all initiatives by the American government to support small businesses into two main forms. The first is financial support, and the second is engendering a conducive environment for these small businesses through proper administration. 

America has about 30.2 million small businesses, which makes small businesses the heart of the American economy. A lot of these businesses are beneficiaries of the small business administration loan or SBA loan. 

The SBA loan is, as the name suggests, is financing for small businesses. Most business owners often wonder, “How do SBA loans work?” Some of these small business owners don’t opt for SBA loans simply because they don’t know how they work.

If you belong to this group, then worry not. In this piece, we’ll highlight seven telltale signs that tell you you’re ready for an SBA loan and how it works. That way, you can get the financing to propel your business to greater heights.

How Do SBA loans work?

Any business, big or small, could use a little extra cash to advance its expansion and financial objectives. While it’s easy for large businesses to get financing, it’s a lot tougher for small businesses, especially startups.

An SBA loan cushions financial institutions from repayment risks that come with financing small businesses. That’s because the small business administration guarantees a considerable portion of the loan that the small businesses receive. 

Contrary to what most people think, it’s not the SBA that’s giving out the loans but other financial institutions. These financial institutions have to meet eligibility requirements stipulated by the SBA for them to be SBA loan lenders. The businesses must also meet certain eligibility requirements to qualify for the loan

Traditionally, banks and financial institutions are hesitant to give loans to small businesses. That’s because many small businesses may not be stable enough to repay the loan plus interest.  

With SBA financing, the SBA guarantees up to 85% of the entire loan. Financial institutions are more willing to lend these small business loans because of this guarantee.

Terms of the SBA Loan

Please note that the borrower applies to the financial institutions and not the SBA for the loan. The SBA will process the borrower’s loan application to find out how much guarantee the borrower qualifies for.

The guarantee depends on a myriad of factors. The major determinants for the guarantee percentage are the loan amount and the type of SBA program. 

You can get up to an 80% guarantee of the loan amount for loans below $100,000.  For loans of more than $100,000, the loan guarantee caps at 75%. The maximum SBA loan amount is $5,000,000.

Signs You’re Ready for an SBA Loan

Not all businesses are eligible for SBA loans, businesses must have to meet specific criteria to qualify for the loan. Though some businesses are eligible, taking an SBA loan may not be the right move for them. If you’ve been thinking about taking an SBA loan, here are telltale signs that you should.

1. You Have Incredible Credit

If you have amazing credit, then there’s no reason why you shouldn’t get an SBA loan. In fact, excellent credit for a small business is something worth bragging about. 

With strong credit, you make a suitable candidate for an SBA loan. The higher your credit score, the more likely you are to qualify for an SBA loan. Apart from the loan, you’re also likely to get much more lenient terms like low interest rates and extended payback periods.

2. When Business Is Great but Off-Season Is Approaching

Business has its highs and lows. While you may make a killing in some months, some months, you’ll be thankful just to break even. An SBA loan comes in handy during these off-seasons to help you generate capital and make payroll.

The trick here is not borrowing an SBA loan when business is bad. You borrow an SBA loan when in a great financial situation to convince your lenders of your financial credibility. 

You’re more likely to get great responses from banks and financial institutions when your numbers are excellent. You can then use the loan to cushion your business during tough times.

3. You’ve Run out of Space

When business is booming, you quickly learn that you might not have enough space to accommodate your growing business. It’s great when your business grows, but then you have to sort out the issue of space.

In such cases, you have two options. The first is to move to a new location, and the second is to expand your current space. Both of these options are expensive, and you’ll most likely need financing.

Many lenders will offer financing through SBA loans for fixed assets. Expansion is a sign of growth, and lenders are open to businesses that show considerable growth potential.

4. You Need to Seal a Business Opportunity

Opportunity rarely comes knocking in business. So when it does, your financial situation shouldn’t make you miss one. If you have a viable opportunity, then lenders are more than willing to give you an SBA loan so you can seal the deal.

You must, however, convince your lenders that you have an opportunity you can’t afford to miss. So arm yourself with as much evidence as you can to substantiate the claims.

5. When Demand Overwhelms Supply

It’s heartbreaking when customers are clamoring for your product, but you’re running short on supply. If financial constraints are limiting your supply, then you should definitely consider an SBA loan. Just remember you need to show your lenders that your demand undoubtedly outweighs supply.

6. When You Need New Staff

You might need new staff for your growing business. It’s easy to hire new employees; what’s difficult is making payroll after hiring. You can use the SBA loan to hire qualified and talented staff to scale your business effectively.

7. To Upgrade Your Business Equipment

A business is only as good as its staff and equipment. However, buying new equipment is only a dream for most business owners. If you desperately need new equipment for your business’s benefit, then why not take out an SBA loan

Get an SBA Loan and Grow Your Business

An SBA loan is a great way to scale your business and get some working capital for your small enterprise. Hopefully, you now have the answer to, “How do SBA loans work?” Now, why don’t you consider taking an SBA loan for your business to take it from a small business to a large one?

If you need quick loans for your business, contact us today, and we’ll sort you out.


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