Is an SBA Loan Right For Your Business? What You Need To Know Before Your Lending Appointment

Your business may be looking to purchase new machinery, undertake a remodel, or perhaps you just need some capital. Regardless, you’ve determined it’s time for a loan, and you’ve heard SBA loans are the way to go for small businesses.

But is an SBA loan the right fit for your organization? And if so, what should you prepare to secure one?

Read on to find out what you need to know about SBA loans before heading into a lending appointment.

What is a SBA Loan?

An SBA loan is a loan guaranteed by the Small Business Association (SBA), an organization that  connects entrepreneurs with lenders and funding to help them plan, start and grow their business. Ultimately, their goal is to reduce the risk to lenders and enable easier access to capital, and in turn, make it easier for small businesses like yours to secure a loan.

SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans. They also have unique benefits such as lower down payments, flexible overhead requirements, and no collateral needed for some loan types – attractive features for any small business.

Do you qualify for a SBA Loan?

Prior to securing an SBA loan, however, you first need to be sure that your business is actually considered a small business by the SBA.

The U.S. Government has a table of size standards that can help you decipher if your business is indeed considered a small business. The SBA also has a size standards tool on its website that may be an easier way to help you calculate if you meet the SBA loan requirements.

In addition to qualifying as a small business, other SBA business loan requirements include:   

• Type of business: Your business needs to be a for profit organization to qualify.

• Domestic location: This loan type is also restricted to businesses located in the U.S.

• Repayment ability: You will need to show some sort of strategy or plan that gives the lender confidence in your ability to repay the loan.

• Business plan: To further instill confidence in the lender, you must demonstrate that you have a defined, solid business plan and purpose.

• Personal investment: You must also indicate that you have invested into the business yourself, proving your own dedication to the company’s success.

What are the options?

Once you’ve determined you qualify for an SBA loan, you then need to choose which type makes sense for your business. SBA loans aren’t one size fits all, and finding the right one for your business is important.

A couple things to consider when looking at SBA loans are:

1. Do you need working capital? Think revolving credit or refinance an existing debt.

2. Do you need a fixed asset: These include new equipment, furniture, or remodeling costs.

You should also consider what terms you’re looking for. For example, two of the more common SBA loans are the SBA 504 loan and the SBA 7a loan:

• The SBA 504 loan is set up for existing businesses and tends to have longer term, fixed interest rates.
• The SBA 7a loan, meanwhile, is generally used by entrepreneurs just starting their venture or purchasing an existing business. These loans are more likely to have a variable rate.

There are more differences that a lender can help explain.

Lending appointment checklist

When you do decide to make an appointment with a lender regarding an SBA loan, make sure you arrive prepared. In addition to the knowledge you’ve learned from this article, below is checklist of what you should prepare in advance to ensure a positive outcome:

• Bring a detailed business plan demonstrating your vision for the business.
• Determine how much capital you will need, and detail how you plan to use the funds.
• Be aware of your credit history. (The lender is going to check regardless; you should go in knowing your credit score.)
• Bring financial projections to aid in discussion of how your business finances work, how you will use the lender’s money, and how are you going to pay it back.
• Be prepared to provide collateral options if needed, such as a piece of real estate, inventory or your car.
• Detail your industry experience, to help give the lender confidence in your ability to run a successful business venture.

Secure a SBA loan to grow your small business

Are you still wondering if an SBA loan is right for your business?

Talk to the experts at a Certified Development Company (CDC) Growth Capital. We can help answer any questions you might have, and get you on track to building your business with the most  beneficial SBA loan for your company’s growth needs.

Contact our loan experts today at (216) 592-2332 or online.