SBA Financing Explained


If you need financial help to get your own small business started, SBA financing is probably your best option. SBA loans are the most common loans for small businesses because they provide several advantages for small business owners, as well as banks.

SBA Loans are Guaranteed

A SBA loan is a type of commercial loan for small businesses that is guaranteed by the U.S. Small Business Administration. You can apply for a SBA loan for your small business at a local bank. If your business is not successful and you default on your SBA loan, the U. S. Small Business Administration will reimburse the bank for a percentage of the loan.

The SBA guarantee provides an incentive for banks to loan more money (for longer terms) to small businesses than they normally would. By insuring specific loans for small business, the U.S. Small Business Administration helps small businesses gain access to capital (and to create jobs).

SBA Loan Amounts

SBA loan amounts can vary between $5 thousand and $2 million. If a small business receives an SBA guaranteed loan for $2 million, the maximum guarantee to the lender will be 75 percent of the loan amount, or $1.5 million.

Different Types of SBA Loans

There are several types of SBA loans including:

  • commercial mortgage loans for the purchase, construction, or financing of commercial properties
  • equipment term loans for the purchase or financing of business and office equipment
  • permanent capital term loans for franchising a start up business

There is a new financial product called the Greenline Program. This program provides a short term working capital line of credit for up to five years.

There is also a new program from the SBA called the Low Doc Program. This program simplifies the process for the banks because it does not require all of the financial data about the business for analysis and review. The process has been simplified to a one page application and a one page analysis of the request from the bank. This program is available for all SBA loans that are less than $100,000, except Greenline loans.

Applying for an SBA Loan

You can apply for an SBA loan at your local bank. It is recommended that you choose a bank that has prior experience processing SBA loans to ensure the process will go smoothly and efficiently. Be ready to provide background information about your company, the owners, business goals, and monthly cash flow projections. Your lender will want documentation that proves how the income from your small business will be able to repay the loan amount over time. If your company already exists, be prepared to share financial history and tax returns with the bank.

Once your application is approved, which sometimes can happen within 48 hours, you will be on your way to running a successful business!

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