What Is an SBA Loan and Why Do I Need One?

Small businesses often find access to financing to be one of their biggest challenges. That’s why it’s important for every entrepreneur to know about SBA loans and what they can do for your business. Not every financing situation can be fixed with one of these loans, but they are often instrumental for a company’s major purchases. Most of the loans given out by the Small Business Administration are for one of three things: purchasing facilities, purchasing equipment, or acquiring a small business that already exists. These loans are considered long-term investments, and they are structured as such, so you’ll need to find other resources for short-term financing or for financing to improve cash flow.

No matter what kind of business purchase you are financing within the program, there will be a few requirements in addition to your demonstration of the company’s financial health and ability to repay. First, you need to understand that the mandate of the SBA is to encourage economic growth in local communities across the nation. That means your business will need to be demonstrably beneficial to that local economy. This can be shown by having local vendors, so you stimulate the economy in your area. It can also be through providing employment, and the number of jobs a company will be adding is a big factor in many loan determinations.

You also need to demonstrate that your business falls within the definition of small business used by SBA loans. That definition generally means the company makes less than $1.25 million per year in income, and there may be other restrictions depending on the exact loan program you apply for. These restrictions ensure that the preferential terms offered by these loans are provided to companies that are small enough too truly have trouble accessing traditional business loans.

The entire goal of the Small Business Administration is to encourage the growth of small companies into the economic mainstays a community needs. That’s why they guarantee loans for viable small businesses, and why they work hard to make sure each company approved for a loan meets the program’s requirements. This can make application processing lengthy sometimes, but you can streamline it by working with a preferred lender. Preferred lenders of SBA loans have the ability to approve loans without waiting for a second approval from the Administration itself. This makes it possible to apply with more than one lender at once, and it also means the lenders can more quickly process loans and make determinations. Keep that in mind when choosing a lender to work with if you’re getting a loan from the SBA.

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