The US Small Business Administration (SBA) and Loan Programs Offered to Small Businesses

October 11, 2021

The US Small Business Administration (SBA) helps fuel entrepreneurship in the US by providing guidance and partnership in small business financing. This helps small businesses retain capital with less friction and additionally provides less risk to the lender. The SBA currently offers 3 loan programs that tailor to a variety of businesses and their needs; 7(a) Loans, 504 Loans, and Micro-Loans. In addition to their lending programs, the SBA also created the COVID EIDL program as the pandemic heightened which assisted lenders in providing small businesses emergency relief to allow businesses to retain their workforce.

How do SBA Loans Work?

The Small Business Administration partners with existing lenders to reduce risk and enable easier access to capital for small businesses. The SBA does not lend to businesses directly, the agency rather provides guidelines and requirements in the loan processing with their partners. Lender Match is an internal tool built by the SBA that allows small businesses to find lenders in their community, essentially this works as a matchmaker for the business owner to gain access to financing. The benefits of an SBA guaranteed loan is the competitive terms, education throughout the borrowing journey, and flexibility in initial upfront requirements. The SBA offers 3 loan programs and each have unique characteristics that tailor to various business needs.

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7(a) Loan Program

The SBA’s most common loan program with the maximum loan amount being $5,000,000. This is recommended when real estate is apart of the financing need but can also be utilized for short and long term working capital, debt refinancing, and supply purchases.

504 Loan Program

This program provides long-term, fixed rate financing of up to $5 million for major fixed assets that promote business growth and job creation.

Micro-Loan Program

The average loan for this program is approximately $13,000, with the maximum being $50,000. These loans are to be utilized for working capital and inventory.

What is Needed to Apply for an SBA Loan?

Each of the Small Business Administration's programs require certain qualifications and expectations. In order to evaluate each business properly, as a small business owner you can be expected to provide the documents and information listed below.

  • Borrower information form
  • Background and Financial statements
  • Business Financial Statements
  • Ownership and affiliations
  • Business license or certificate
  • Loan application history
  • Personal and Business Income tax returns
  • Personal Resumes
  • Business overview and history
  • Business lease

What Hinders Your Chances of Getting an SBA Loan

According to Connect2Capital, a majority of business loans are denied with big bank approval probability being lower than small bank or credit union approval probabilities. Potential reasons for denial are listed below.

  • You have a low overall personal or business credit score, or a poor credit history.
  • You do not have sufficient collateral or assets to secure your loan.
  • You do not have enough free capital or cash flow to meet loan repayments.
  • You have too much already outstanding debt.
  • You have previously defaulted on a government loan or have a tax lien, judgment, or bankruptcy against you.
  • You haven’t demonstrated sufficient financial need for the loan.
  • You’re in an industry that the SBA does not lend to.
  • You’re not considered a “small business.”

Institutions who Process SBA Loans?

Interested in an SBA Loan? Check out Equire Finance’s “Top 99 Most Active SBA Lenders” .

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