Everything You Need to Know About SBA Loans

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The U.S. Small Business Administration was created in 1953 as an independent agency of the federal government to aid, counsel, assist, and protect the interests of small business concerns. It was also created to preserve free competitive enterprise, and to maintain and strengthen the overall economy of the United States.

To further their mission of sparking continuous business growth, they offer guaranteed Small Business Administration (SBA) Loans to provide budding and growing businesses with ability to get capital for several types of purchases, including real estate and existing buildings, to update existing buildings, to purchase new equipment, or to pay off loans from the purchase of the previously mentioned items.

SBA Loans are attractive to business owners for a number of reasons:

  • Low Down Payment: An SBA Loans can cover up to 90 percent of the purchases or payments mentioned above. In most cases, a certified lender (designated by the SBA) will provide 50 percent and the SBA will cover the other 40 percent. That means that a small business will only need to provide around 10 percent of the remaining cost.
  • Low Interest: Since SBA Loans were created to help increase economic development, their loan rates are most often lower than those offered by other financial institutions with business loan products and services in their portfolios.
  • Large Limits: Again, compared to limits offered at standard financial institutions for business loans, SBA Loans generally offer much higher loan sizes.
  • Fixed Interest: This is a major benefit to small businesses because they know exactly what they will need to pay each month for the life of the loan. For a new business owner trying to establish a budget, not having to have contingencies for market fluctuations on loan rates is extremely important.
  • Longer Terms: SBA Loans have rates from 10 to 25 years, which can be significantly longer than average business loans from other financial institutions. So instead of needing to refinance before the loan is paid off and not knowing what the market volatility will be at the time, a business owner can have the time they need to repay the loan, at the same low, fixed rate.

The loan term depends on how you plan to use the money, according to the SBA:

  • Working capital or daily operations: seven years
  • New equipment purchases: 10 years
  • Real estate purchases: up to 25 years

Knowledgeable Lenders: Certified lenders working with the SBA in offering SBA Loans are focused on small businesses and their specific needs. Their loan expertise is very specialized, thus they can offer greater feedback and shorter processing times. When using a Certified Development Company (CDC) with an Accredited Lenders Program (ALP) designation, they have an increased authority to process, close and service SBA Loans to expedite loan processing and closing. This is important for businesses that need to take advantage of time-sensitive real estate transactions or other things where time is of the essence.

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