SBA business loans refer to any small-business loans backed by the US Small Business Administration (or SBA) as part of one of several SBA loan programs.
But let’s break that down a bit.
Lots of business owners have a hard time getting financing for their companies. In large part, that’s because lenders want to lower their risk, so they only offer financing to the most qualified business owners.
The SBA loan program tries to address this problem. With an SBA loan, the US Small Business Administration backs, or guarantees, a portion of the loan―meaning they basically promise the lender that no matter what happens, they won’t lose tons of money on the loan.
That makes SBA lending less risky for lenders, which means they’re more willing to offer loans to business owners that they would otherwise turn down.
And those business owners don’t just get any old loan either. Because each SBA loan program comes with a specific set of rules for lenders―rules that set maximum fees and interest rates, for example―SBA borrowers get loans that have competitive rates, long repayment terms, and versatile uses.
In many cases, that makes an SBA loan one of the best deals you can get on business financing.
SBA loans do have some downsides though.
For example, as with most government-related things, the SBA lending program has lots of rules and regulations. That means the applications require plenty of documentation and detail. It can take a long time to get your loan application ready in the first place―and then you still have to wait for lender and SBA approval. In other words, SBA loans can take a long time (weeks or months) to get.
And while the Small Business Adminstration’s loan program does make financing more accessible for more business owners, SBA loans still have fairly restrictive borrower requirements. Most SBA lenders require at least the following:
- A business that’s at least two years old
- A personal credit score in the high 600s (likely 680 or above)
- Plenty of business revenue (more than $100,000) to cover loan costs
Oh, and you have to show that you can’t get financing elsewhere―meaning you’ll need to have a loan rejection or two in your pocket.
Anyway, those borrower requirements mean that business owners with a low credit score, for example, won’t qualify for SBA loans. Neither will young startups. (But don’t worry, there are plenty of bad credit startup loans available.)
Still, if you think you can qualify and you’ve got some patience, an SBA loan could offer just the low-cost working capital you want.