SBA loans

One of the first things you need to do when starting a small business is obtain funding for your business. You can do this is a number of ways. One of these ways is by obtaining a loan from the Small Business Administration (SBA).

The SBA has a number of different loans available to small business owners. However, the SBA is only a guarantor of loans taken out by banks or other private lending companies.

Types of SBA loans
The most commonly used type of SBA loan is the Basic 7(a) Loan Guaranty. This loan is named from section 7(a) of the Small Business Act, which states that loans can be provided to small businesses that are run in America. You can use the money from a 7(a) loan for all aspects of your business, whether it's building a new office or purchasing machines or office equipment.

This type of loan is called a Guaranty loan because the money is provided by private lenders, such as banks, that can set up the loans however they wish, provided they follow SBA requirements. Most American banks participate in this program. In addition, they receive a guaranty on a portion of the loan from the SBA. This means that should the person receiving the loan default on it, the SBA will pay a portion of it back, similar to a co-signer. The lender also shares this risk.

How to apply for an SBA loan
Applying for an SBA loan is relatively straightforward:

1. The business selects a bank and then applies for a 7(a) loan for financing.


2. The bank reviews the application. After reviewing the application and other eligibility requirements, the bank then decides if they will fund the loan, or if they will require an SBA guaranty for the loan (or, in other words, have the SBA act as a guarantor for a portion of that loan should the business owner default). This typically happens if the business is considered at-risk, or if the application has certain weaknesses.


3. If the SBA provides a guaranty, the loan is financed to the business.

It's important to keep in mind that no bank is under any obligation to provide businesses with a loan, even if the SBA guaranties it; the SBA can't make the lender approve the loan.

SBA loan criteria
Because the SBA can't force a bank or lender to provide funds to a business, it's important that when applying for a loan, the business meets all of the necessary criteria for a loan that is supported by the SBA.

Eligibility requirements include:

• Repayment ability. This will be the main criterion. Your business must have a cash flow that indicates you will be able to repay the loan.


• Creditworthy. The business or business owner must have excellent credit in order to secure funding for this type of loan. If you have blemishes on your credit, fix them before applying.


• Management capability. The lender wants to know that the business is being run by capable managers.


• Collateral. In the event that you default on the loan, you should have sufficient collateral that the bank can seize to make up for your inability to repay the loan.

SBA loans are helpful for businesses that need start-up money to get their business off the ground. These are just a few things you need to know about SBA loans.