Some business owners make the mistake of venturing into entrepreneurship by assessing and understanding various forms of funding. This often results in poor financial decisions and the closure of small businesses. To avoid making such blunders, it is crucial to know how Small Business Administration (SBA) loans work. This article will walk you through the process of securing SBA loans and their benefits.
Definition of SBA
The Small Business Administration (SBA) is an agency of the federal government that helps small businesses with capital, contracting, and counseling. This body is mandated with ensuring that small businesses thrive in America. One of the ways to achieve this is through the SBA loan program. The program ensures that lenders receive financing to run their small businesses.
How Does SBA Loan Work?
Unlike conventional lending, SBA does not give you money directly. Instead, it liaises with institutions such as banks, credit unions, and development organizations to guarantee a portion of the loan. This means that you are cushioned from the risks associated with lending.
Eligibility for an SBA Loan
For you to access SBA loans, you are expected to provide your company’s financial documentation to the federal government agency and bank. After assessing the details, SBA will determine the most appropriate loan for your business. The most common types of SBA loans are 504 and 7 (a).
Are SBA Loans Beneficial?
Yes. It has been proven that SBA loans have lower interest rates and longer loan terms. Moreover, you get to have better access to capital and credit enhancement. This type of loan also has flexible payment options which are helpful for small businesses and startups. Remember, business owners, are protected from the risks involved in case of a loan default by the SBA.
Demerits of an SBA Loan
Some of the drawbacks include:
Businesses must be operating for a minimum of two years to qualify
Long processing period
Final Thoughts
SBA loans have been around for decades and have helped promote the growth and sustainability of small businesses. Contact Commercial One Group for professional assistance.