Have You Heard Of SBA Unsecured Loans Yet?

There is a lot of talk about SBA unsecured loans. But what are they? And how to access them? Well, the Small Business Administration (SBA) provides many loan programs for a wide range of purposes. SBA loans are commonly called SBA 7 (a) loans or SBA 504 loans for commercial real estate. The SBA also offers smaller programs such as microcredit programs and disaster loans (the latter of which has been used a lot by entrepreneurs recently because of the pandemic and is perhaps most important for you if you have an independent business here in the US.

   1.  Who offers SBA loans?

The term “SBA unsecured loan” is a bit of a misnomer, since it is not an actual business loan issued directly from the SBA. It is a loan issued from banks and other lending institutions guaranteed by the SBA. It means that usually the repayment to the lender is done by the SBA with a limit. The SBA does not automatically guarantee all loans – lending institutions, such as banks or other alternative lenders, choose whether or not to participate in SBA programs.

   2. Why consider an SBA loan?

Although difficult to qualify for, an SBA loan is a good financing option for small business owners, especially in light of favorable SBA loan rates. With an SBA loan, a business can get up to $5 million with rates ranging from 4% to 10%. Participating banks and lenders know that the government will cover any possible default, which means that they are taking less risk when lending the money. With this safety net in place, they are more likely to offer flexible terms and lower APRs – a benefit for any small business seeking financing.

   3. Where to apply for an SBA loan?

The fastest way to find an SBA lender is to search directly on the SBA website. There are loans available online, but since banks issue most loans, there is a high possibility that you will need to apply in person.

   4. Is an SBA loan the right choice?

The usual flexible payment terms and lower APRs of an SBA unsecured loan are attractive to any small business. However, the difficulty lies in getting the loan approved. The SBA requirements are quite stringent – you will need at least a credit rating of good to excellent and must meet the lender’s specific qualifications – including several years in business, annual revenue, and more. In addition, you must meet the SBA loan requirements, which can be found on the SBA loan program’s eligibility page. There are also a good number of businesses that are considered ineligible for an SBA loan, so read the full list before starting the process.

   5. What are some alternatives?

SBA loans, while a good financing option, are not always within reach for all small businesses. Businesses that have recently opened or do not have a high credit rating will probably not be approved due to the strict requirements. A comparable option is a line of credit from an alternative lender, but the approval criteria are quite similar. You may also consider bad credit loans if your financial profile does not meet institution loan requirements. I hope you have a better understanding of what the SBA loan is and, more importantly, that you, the small and medium business owner, have a chance to be approved for a disaster loan.

   6. How do SBA loans work?

SBA loans and credit points are similar to conventional commercial loans from banks – business owners apply, secure financing, and then pay back with interest over time. And, like conventional commercial loans, SBA loans are obtained through local means.

Like other commercial loans, – primarily various including application fees, appraisal fees,(if a loan is being secured by assets such as real estate), loan fees.

The guarantee fee by the SBA applies only to the part of the loan guaranteed by the SBA.

   7. What are the different SBA loan programs?

SBA loan programs are designed specifically for small business owners who do not have access to other types of financing. There are four main loan programs:

• 7 (a) loan program: This program mainly focuses on providing financial help to small businesses and a few startups. The money might be directed to a lot of different business areas and expenses, like debt refinancing, buying or renewing buildings and lands, fixtures and furniture, equipment and machinery, improvements to leased properties, and working capital. The loan term is usually long, for working capital it can reach 10 years, while for fixed assets it can reach 25 years. 
• 504 / CDC program: This is the program for long-term loans, which is accompanied by fixed rates. But only if your assets are of much value, like buildings and lands. Usually, loans are structured within a 40% range from what costs are to which the SBA provides the funding. A lender who chooses to provide some investment can put a maximum of 50%, while the borrower completes 10% of what remains. These funds serve to purchase assets such as machinery, lands, buildings, or renovations. Although they can’t cover inventory or working capital. For a company to be eligible for qualification, the company’s net worth mustn’t exceed $15 million. They must also guarantee $5 million or less in average net income after tax before applying. The max loan in this program goes up to $5million.
• Micro-credit program: It offers small loans for growing businesses and start-ups. The SBA works with intermediaries, who can provide up to $50000 in loans, averaging $13000 per loan. Although, these microloans are not allowed to be used for debt payments or for purchasing any type of real estate.
• Loans for disaster situations: This option is reserved for emergencies in which a business has been affected by a disaster. Usually low in interest, they are mostly used for doing public good!

How to qualify for an SBA loan

The following are practical steps to follow to qualify for an SBA loan:

• Build your credit score
• Know the lender’s qualifications and requirements
• Gather the necessary financial and legal documents
• Develop a strong HR and simple business plan,
• Document or obtain collateral