How to Grow a Business Using SBA Loans

The SBA guarantees many of the same type of loans that banks issue directly through custom SBA loan programs. Term debt in the form of real estate and equipment purchases are mostly financed with SBA 7(a) or 504 loan programs. Lines of credit are made available with ‘SBA Express loans’ and SBA CapLines.

Business owners can use SBA loans to effectively manage their business cash flow. The SBA lending program is a major stimulus for business growth in the US. SBA business loans are being substituted with traditional commercial loans, rendering special benefits to the borrower.

The SBA agency provides extended term loans—to the benefit of small business owners. For example, real estate can be amortized within a 25 year period with SBA loans while banks allow only 20 year amortization. Equipment purchase can be amortized within 7 to 10 years while traditional bank financing needs 5 year period to be amortized.

The SBA’s lower collateral requirement is yet another advantage. The agency has significantly higher loan-to-value ratios as compared to traditional commercial loans.

The borrower can increase their chance of receiving an SBA loan by approaching several lending institutions. It is necessary to find the right financier and work with bankers who understand your industry well. It is also important to develop a comprehensive business plan and explain why their business is set up for financial success. Also, calculate the possible business risks and offer mitigating measures. The business owner should also be realistic about financial projections and provide solutions for the risks associated with projections. And as far as the repayment is concerned, alternative repayment modes can be suggested by borrowers. A good credit history also significantly increases a business owner’s odds of receiving an SBA loan.

Your business plan should be thoughtful and thorough. Lenders consider many factors—not just financial statements and business projections. Every bank is different so be sure to do your homework and submit information that is detailed and concentrated on what the lender is looking for. It can also be important to take future financial needs into consideration and plan out loan applications accordingly.