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SBA Loans—What You Should Know
Starting a small business is a big commitment. It includes start-up costs and often requires securing financing help to get up and running. For those starting or running an existing small business, a small business loan or SBA (Small Business Administration) loan can be a lifeline. Here’s an overview of SBA loans and how they work.
What is an SBA loan?
The SBA loan program enables small businesses to get funding for starting up or growing their business. SBA loans are issued by a private lender, such as a bank or credit union, but are backed by the U.S. government’s Small Business Administration, which guarantees a portion of the loan repayment. Although these loans are backed by the SBA, borrowers are still responsible for repaying the loan.
SBA loans are often from $50,000 to nearly $4,000,000 and can be easier for small businesses to qualify for because they often provide more favorable loan terms than conventional loans, such as:
- Lower down payments
- Lower interest rates
- Lower Payments
Some SBA loans don’t require collateral, and some may offer continued support as you start and run your business.
How do I qualify for an SBA loan?
SBA loans require a personal guarantee from the owner(s) that have a 20% or more stake in the business. When you apply, the lender will assess your credit worthiness and other SBA specific criteria, including:
- It must be a for-profit business
- The business must be in the United States or its territories
- The business must meet SBA small business size standards
- The applicant must demonstrate a reasonable ability to repay the loan
- The applicant has exhausted non-government assisted financing options
A business plan that states the type of business the loan is for and how the loan funds will be used is also often required. The lender will guide you through the SBA qualification process to ensure applicability of the program.
What are the different types of SBA loans?
There are five main types of SBA loans, each with unique purposes, lending requirements, financing terms, and maximum loan amounts.
- SBA Microloan: This is a small loan, typically up to $50,000, for startups and small businesses. These loans (not currently offered by Citadel) mainly cover expenses for working capital, inventory, supplies, equipment, and machinery
- SBA 7(a) Loan: This loan covers a variety of purposes, including working capital, equipment, vehicles, renovations, expansion, and business acquisition. Loan amounts typically range from $150,000 to $5 million. Loans up to $150,000 can be guaranteed up to 85%, while loans over $150,000 are guaranteed up to 75%
- SBA Express Loan: This expedited loan is for working capital and offers fast funding with a maximum loan amount of $350,000
- SBA 504 Loan: This loan is typically used for commercial real estate purchases, such as buildings, land, machinery and new construction and cannot be used for solely for working capital
- SBA Disaster Loan: This loan is used to repair damage due to a declared disaster and cover business operating expenses. It typically covers up to $2 million in damage and expenses, and is administered directly by the SBA
How do I get an SBA loan?
To get an SBA loan, you must work with an SBA-approved lender. If your application is approved, your lender will close the loan and disperse the funds. You are responsible for monthly payments directly to the lender.
You can use the SBA's Lender Match to connect with potential lenders based on your needs. And if your business operates in Southeast Pennsylvania, Citadel may be able to help. As an SBA lender, our experts can work with you to learn more about our SBA loan programs and other financing options that can help support growth, maximize cash flow, and provide financial stability for your business. Contact us to learn more.
Citadel is an authorized SBA 7(a) Lender including the SBA Express Program.
