If you’re in charge of a business, you’ve likely dabbled in the idea of loans to help with your financial needs. One of the ones you may have come across is an SBA loan, and that’s what we’re here to discuss today.
SBA Loans: What Are They?
The U.S. Small Business Administration is a federal contingent that helps small businesses receive loans to help them with their funding. They do this through many different types of loans. The SBA will back these other types of loans for disaster recovery, and they help lenders provide loans through more traditional avenues.
However, the SBA does not provide loans. They work with the lenders to help provide the loans. The SBA offers specific rules and regulations that the small business will be beholden to. These additional regulations will allow small businesses to get loans that they otherwise might not be eligible for.
SBA Loan Types
Some of the common types you might have come across when considering SBA loans are:
- 7(a) loans
- 504 loans
- Microloans
Even though SBA loans come with additional stipulations, they still tend to have decent fees and rates so that you won’t be penalized too hard for stepping one toe out of line. Many of them even have lower down payments, no need for collateral, and flexible requirements for overhead and repayment.
Eligibility
Now for what you’re here for… eligibility requirements.
When it comes to SBA loans, no matter which loan you’re going for, there are specific requirements that you’ll have to meet. These are the most basic of the basic eligibility requirements, so ensure that these apply to you at least. From there, specific loans will require other details, but this is the starting line.
Operations of Your Business
When it comes to being eligible for a business loan, you must be in charge of a business (seems obvious). Additionally, your business must be considered a “for-profit” business, and it needs to be legally registered as per all national and state guidelines. Additionally, you’ll find that certain industries just aren’t eligible, so ensure that you are not working in one of those industries.
Your business must also be a size that confirms you are a small business. There are tools on the SBA website that will help you determine if you are or aren’t considered small.
Location
To qualify for an SBA loan, your business has to exist within the continental United States or its surrounding territories.
Financing Prerequisites
Not only must you have invested significant time and/or money into your business (from your own pocket; this is called equity), but you also will need to then prove that you have:
Attempted to find financing through other channels before reaching out for an SBA loan.
You must be able to prove that you have a desperate need for additional funding.
You must have an extremely detailed business plan for how you expect to use the funds that include detailed information for why certain funds will be used in certain areas.
Health and Character of Your Business
If you have any outstanding debt obligations and/or if you are delinquent on any of your accounts, you will not be eligible for an SBA loan. Additionally, no one who owns more than 20% ownership in your business can be in jail, on probation, on parole, or in the midst of a criminal proceeding (as a defendant).
So long as – at least – you are eligible under these prerequisites, it’s worth it to consider getting an SBA loan if you need the money.