When it comes to small business or small business loans, there are two options: private loans and government loans.. While private lenders are often more cautious about taking the risk of a new business or business start-up, government small business loans were created specifically to boost small business in America.
As a result, you may find that It’s easier to get a government small business loan than it is to get one from a private lender.
Most of the government loans for small businesses are administered through Small Business Association (SBA), together with lending institutions that are responsible for distributing the money.
Because the loan is government-backed, meaning that if you don’t pay, the government will, banks and credit unions are more likely to take this type of loan than others.
- 1 SBA loans
- 2 What loans does the SBA offer?
- 3 Who qualifies for a government small business loan?
- 4 The amounts of government credits for small businesses
- 5 Waiting time for a government small business loan
- 6 Interest rates
- 7 Advantages of SBA loans
- 8 Disadvantages of SBA Loans
- 9 What documents do you need to apply for an SBA loan?
- 10 How to apply for an SBA loan
- 11 Additional Options for Veterans and Women Business Owners
An SBA small business loan is backed by the Small Business Administration (SBA or Small Business Administration). Founded in 1953, the SBA is a federal government program that provides support to small business owners in the form of mentoring, workshops, advice, and small business loans.
Although the loans are backed by the SBA, they do not come directly from the SBA. You will need to find a local lender that offers SBA loans in order to access financing.
What loans does the SBA offer?
There are three types of government loans for small businesses granted by the SBA:
- 7(a) loans
- 504 loan program
- Microcredit 7(m)
Who qualifies for a government small business loan?
Each type of SBA small business loan has slightly different requirements, but for any of them you must qualify as a small business according to the SBA size requirements.. Be a for-profit business, operate within the United States, have good personal and business credit, and have no other financing options (such as your own equity).
The amounts of government credits for small businesses
SBA loans are capped at $5 million.. Therefore, they are a good option for small business start-ups that need smaller amounts of capital, compared to others that might need many millions of dollars.
Waiting time for a government small business loan
The SBA loan application process can take up to six weeks, and some only a couple of weeks. If you qualify for an SBA loan, you can receive the credit starting the first week after you apply.
As of May 2018, the maximum interest rates on SBA loans range from 7% to 9.50%.
Advantages of SBA loans
- The loan is backed by the federal government. That means banks are more willing to make these loans to riskier companies like startups than they might be without government backing.
- The capital requirement is relatively low compared to other loans.
- SBA loans have a floating interest rate that is tied to the prime rate. The maximum interest rate for these loans is the Prime Rate plus 2.25 percent for loans due in 10 years or less, and the Prime Rate plus 2.75 percent for loans due in 25 years..
- Individuals and businesses that do not have access to other forms of capital may find it easier to qualify for a micro loan than for a larger or traditional loan.
Disadvantages of SBA Loans
- SBA small business loans are relatively small. They have an upper limit of 5 million dollars.
- These loans may require more paperwork than a traditional loan.
- Start-ups or founders with poor credit do not qualify.
What documents do you need to apply for an SBA loan?
Regardless of the type of government small business loan you decide to apply for, you must submit the following documents and information to the appropriate institution. It is recommended that you meet all the requirements before approaching the bank. Also, you should be sure if you qualify for the loan before starting the lengthy application process..
You will need to:
- A personal background document.
- Professional curriculum.
- A business plan.
- A description of how you plan to use the loan.
- How long you have been in business.
- The size of your company.
- Personal credit report.
- A business credit report.
- Personal and business tax returns.
- Other financial documents.
How to apply for an SBA loan
If you are interested in apply for an SBA loan, you can check the website to find a financial institution near you that offers these government small business loans.
Additional Options for Veterans and Women Business Owners
The federal government and the private sector have a specific subset of loan options available specifically for veterans, as well as women’s small business loans.