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4 Types of SBA Small Business Loans

Revenue-based Business Loans

The U.S. Small Business Administration (SBA) has made it their mission to help small businesses succeed. They do this by offering loans to existing small businesses that have been in operation for at least two years. A business owner may want an SBA loan to expand their operation, acquire new equipment, hire more employees, or purchase more real estate.

Since the SBA is a federal agency, they provide a guarantee to the banks that issue SBA loans to business owners on their behalf. That means that if the business owner  defaults on the loan, the SBA will reimburse the lender to cover their losses. Because of this, lenders are willing to offer business owners longer repayment plans, lower interest rates, higher loan amounts and lower monthly payment terms on SBA loans.

SBA loans offer much better deals than direct bank loans. However, you have to meet certain SBA requirements to get approved for an SBA loan. These are not requirements set forth by banks, but rather by the SBA itself. Banks are the lenders that issue the SBA-guaranteed loans to business owners. But the owners must meet the SBA requirements before the SBA will guarantee the loans for the banks.

For example, if you wish to borrow between $30,000 and $350,000 in the form of an SBA loan from a bank, here are some of the basic eligibility requirements:

  • The business owner’s personal credit score cannot be lower than 650.
  • No existing tax problems.
  • The business owner must be a United States citizen or legal resident.
  • The business owner must be at least 21 years of age or older.
  • The business needs to be at least 2 years old.
  • No government-based loan was issued to finance the business.

This should give you an idea of what you need to look for. The SBA can guarantee small business loans of up to $5 million. Loans of this size are normally used to purchase commercial real estate. To get approved for that amount, you need an impeccable personal credit score and business income history.

Types of SBA Business Loans

There are four different types of SBA business loans. Let’s review them now.

7(a) Loan Program – This is the SBA loan program discussed above. It’s the program that guarantees small business loan for banks so that business owners can receive a good deal on the terms of their loan. If the owner defaults on the loan, the SBA reimburses the bank for the loss. The loan program offers a guarantee to lenders of no more than $5 million. The loan is meant to pay for equipment, business expansions, inventory, or to serve as working capital for everyday business expenses. The loans can be processed by credit unions, banks, or specialized lenders. 

504 Loan Program – The SBA offers this special loan program for business owners that need capital to make big purchases such as machinery and real estate. Nonprofit organizations or private-sector lenders process the loans on behalf of the SBA. The loan program offers lenders a guarantee of no more than $5 million.

Microloans – The SBA offers microloans of no more than $50,000 to startups and new businesses that need money for working capital, equipment, and inventory. Community banks and nonprofit organizations generally process these loans. Business owners incur far less risk with microloans, and they have a better chance of getting approved for them.

SBA Disaster Loans – If a natural disaster (e.g., hurricane, tornado) or some other unexpected emergency affects the operation of a small business, the business owner can apply for an SBA disaster loan. The SBA processes these loans directly through their own organization.

Conclusion

Small business owners like you should consider taking advantage of an SBA loan opportunity. You can get started through Globelend Capital. We offer services to connect business owners with all banks that offer SBA-guaranteed small business loans. The SBA loans of the 7(a)-loan program are the most recommended, because they give small business owners the best terms and rates.

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