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Is an SBA loan the right option for your small business?

July 31, 2017
Robert Sims
Robert Sims

Most business owners are aware that the Small Business Administration offers a variety of loans to help small businesses expand and grow, but is an SBA loan the right fit for every situation? Here are some details about the types of SBA loans available and tips for navigating the application process.

SBA loans are a business financing option worth considering

For many small businesses, an SBA loan is a great financing option. SBA loans are guaranteed by the federal agency, which allows lenders to extend better rates and more manageable terms to small business owners.

Obtaining an SBA loan requires documentation about your business' financial position and your meeting credit score requirements. The low rates on SBA loans make them a great way for many businesses to obtain working capital to manage cash flow or expand.

What kind of loan can I get from the SBA?

The SBA offers four main types of loans:

  • SBA Advantage or 7(a) loans – The most common general SBA loan program, this loan may be used to start a new business or assist in the acquisition, operation, or expansion of an existing business.
  • Microloans of $50,000 and less – Microloans help small businesses and certain not-for-profit childcare centers start up and expand. The average microloan is about $13,000.
  • Real Estate & Equipment loans: CDC/504 – Certified Development Company/504 loans provide financing for the purchase of major fixed assets such as equipment and real estate. There may be certain eligibility requirements.
  • Disaster loans – The SBA provides low-interest disaster loans to businesses of all sizes, private non-profit organizations, homeowners, and renters. These loans can be used to repair or replace real estate, personal property, machinery and equipment, and inventory and business assets in a federally-declared disaster area.

SBA loans have some practical advantages, such as extended loan terms and amortizations. There are no balloons with those extended terms, and no renewals, which are time consuming and may have costly origination and appraisal fees. While the process may take a little more work on the front end, a business owner can save time and money in the long run by going through the approval process only once, rather than having to renew the loan every 5 years or so with a conventional loan.

Good planning can lead to faster approvals

SBA loans have a reputation for taking a long time to get approved and funded. But funding delays in many cases can be attributed to not providing requested documentation in a timely manner. Doing some work in advance can help expedite the process. Start by creating a simple business summary that includes information about your company:

  • What does your company do?
  • Who owns or manages it?
  • Who are your biggest customers?
  • What do you want funding for?
  • How much equity are you willing to put in?

You’ll also have to provide basic financial information:

  • Business: Last 3 years of financial statements
  • Personal: Personal financial statement
  • Debt schedule
  • Plus additional documentation based on your business situation

SBA.gov is an invaluable resource for all small business owners, from established businesses to new start-ups. This website contains important details about the types of SBA loans available, how to apply, and a documentation checklist. You’ll also find helpful videos, blogs and information about almost every aspect of starting, running and growing a small business.

Our lending expertise, your success

SBA loans are only one tool in Hancock and Whitney Bank’s business financing toolkit. Our business bankers get to know business owners and their businesses, and take a holistic approach to determining the right financial solutions for every unique situation. We’re here to help you in your business journey.

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