SBA Loan: Is it the Right Funding Solution for Your Business?
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SBA Loan: Is it the Right Funding Solution for Your Business?

What Is the SBA?

SBA stands for the Small Business Administration. The SBA provides support, low-cost training, and counseling to small businesses. One of the main things the SBA is known for is their ability to provide small business owners with working capital to grow and expand their business; SBA provides small businesses with an array of financing for small businesses from the smallest needs in microlending – to substantial debt and equity investment capital (venture capital).”

What are SBA Loans and How Do They Work?

SBA 7(a) loans are used for helping start-up and existing small businesses and can reach up to $5 million. Approval takes about one week, and disbursement can take up to six weeks, therefore business owners should keep in mind that they may not see any money for four to six weeks. The SBA’s (U.S. Small Business Administration) lending standards favor businesses that can offer equipment and property as collateral even though it is not necessary to qualify. For established merchants with significant financial needs, SBA-backed loans deliver popular benefits.

What’s Needed To Qualify?

To participate in the 7(a) loan program, a business must meet a list of restrictions set by the SBA and additional requirements set by the originating bank. For example, the applicant

  • Must base for-profit operations in the United States
  • Must demonstrate an equity investment in the business before requesting government help
  • Cannot be delinquent on taxes or any other debts to the federal government
  • Cannot be involved in certain financial, political or members-only activities

To earn 7(a) bank financing, each of the business’s principals typically must provide the following:

  • Business plan, overview and history
  • Personal and business credit reports
  • Personal and business income tax returns for the last three years
  • Projected Financial statements
  • Current Profit and Loss and Balance Sheets
  • Loan application history
  • Business licenses
  • Franchise agreements
  • Articles of Incorporation
  • Ownership and affiliations

Additional documents, a personal interview and proof of collateral through business and/or personal assets may also be required. Owners with 20 percent or more equity must personally guarantee SBA loans.

Costs and Terms

Under a 7(a) small business loan, the business makes monthly payments of principal plus interest for up to 25 years. The SBA charges a prepayment penalty on loans of 15 years or longer. Fixed and variable interest rates range from 5.5 to 8 percent annually, as of July 2015. With a 7(a) loan, borrowers must pay

  • Up to 3.5 percent of the SBA guaranteed value as a guarantee fee
  • Up to $12,000 to the bank for appraisals, title, packaging, attorney review and environmental reports

To learn more about SBA Loans and to learn if if is the right funding solution for your business, call us today at 877-880-8086!

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