SBA Business line of credit

When small businesses are looking for financing they will often turn to the Small Business Administration. The Small Business Administration not only provides extensive resources and information for all things concerning small businesses but also backs some lines of credit and loans.It is important to note however that these lines of credit and loans are not administered directly by the Small Business Administration but are processed through local lenders in your area.

A Small Business Administration line of credit is not very different from other business lines of credit.The major difference is that the Small Business Administration backs the loan in a way that a portion is insured by the Federal Government.This makes the loan less risky if you can qualify for it.Business owners especially like this type of financing since line-of-credit financing can help a small business stay afloat when cash supplies are low. Businesses can also use it for expansion, or on a seasonal basis to finance inventory buildup. Best of all these types of loans can be used immediately once the line is established.

Another major benefit with this line of credit is that usually the bank is approving a loan that is borderline meaning that it is something that they would not otherwise approve.In addition by having this SBA line of credit it usually means they will approve it for a little higher limit.This allows small businesses that would not otherwise be able to qualify for financing to gain a line of credit at even a higher limit than they would of.

Small business owners need to understand that this is a typically slow underwriting process.In addition while sometimes the bank would approve it anyway, the lender uses the Small Business Administration to mitigate their risk.Also business owners should understand that often this line of credit carries a pre-determined term of several years at which point the line of credit will convert to a term loan that is amortized over 3-5 years. You should also realize that when the line of credit converts to term the payments will be much higher, and the utility that had been gained from a line of credit is lost.

Another option in Small Business Administration financing is obtaining an SBA small business loan.Unlike a Small Business Administration backed line of credit this is strictly a term loan with no line of credit attached.The payments and interest rate for this loan will be fixed. Again like a line a credit the Small Business Administration does not actually fund any loans, rather it only insures the loans through lenders that are making them.

Like a Small Business Administration backed line of credit usually the lender will approve a business owner that they would not have otherwise approved.Also unlike many other structured loans the interest rate is fixed.

The downsides to this are if a business owner is approved for a term loan, they probably would have been approved for an SBA-backed line of credit instead. Also having a small business term loan does not have the same utility that a line of credit offers. This is because once the loan is paid off it is gone, whereas with a line of credit it can be used over and over.

While both SBA lines of credit and loans can be highly beneficial to small business the reality is that SBA budget cuts have caused changes to the small-business guaranteed loan program. The percentage of bank loans that will be guaranteed will be lowered, guarantee fees paid by banks will be higher for loans over $100,000, and the loan guarantee limit was raised.