What We Need to Know of SBA Loans
Definition of SBA Loans
As the name implies, these are the loans given by the Small Business Administration to small entrepreneurs and businesses. The U.S. government is the one who manages and oversees all its programs and operations. Discover more about SBA loans and its benefits in here.
What Are Its Benefits?
The truth is, these loans are small funding for businesses which are supported by the U.S. federal government. Technically speaking, the money don’t come from the Small Business Administration directly but it is the one that guarantees certain portion of it so as to minimize lenders’ risks. The maximum percentage of guarantee provided by the SBA is 75%. The SBA can provide loan amounts from $150,000 to $500,000. Studies show that without the backing provided by the U.S. government, lenders and small business have the possibility of losing all the amount they lend because of cash flow problems. Because of this guarantee, they can recoup up to eighty-five percent of the money, should non-payment arises. For these reasons, there are growing number of entrepreneurs and businessmen who apply for it.
Figures from the Small Business Administration show that approximately $23.2 billion of SBA loans in 2019.
How It Works?
The Small Business Administration works with various lenders like banks, lending institutions, and micro-ending firms. The SBA also collaborated with community development entities. When you apply for SBA loan, you need to pass through these entities because they are the ones who released money and not the SBA. These lenders structure these loans according to the guidelines, terms, and rules set by the Small Business Administration.
The Prime Reasons to Consider SBA Loans
1. There are lots of businessmen who prefer SBA loans than other commercial loans because of its low interest rates. For these reasons, it is not troublesome and challenging for businessmen to pay their debts.
2. Small businessmen and entrepreneurs are given longer repayment terms to pay their SBA loans. The SBA gives borrowers the chance to pay their loans until 25 years.
3. No collateral is needed to apply for micro SBA loans. It is applicable for loans that do not exceed $25,000. However, the SBA requires collateral for loans more than $25,000 and they can present different types of collateral.
The General Loan Requirements of the SBA
For those small businessmen and entrepreneurs who have plans of applying for SBA loans, the Small Business Administration requires them to submit certain requirements like enough equity, cash flow forecasts, and credit scores. You can also find some lending companies that require borrowers to have specific number of years management experience.
Now that you are already familiar with Small Business Administration Loans, you can inquire from the agency to explore the loan options available to you.
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