Understanding SBA Loans for Small Business Owners
Small business loans are one way new entrepreneurs can gain the financial support they need. The U.S. Small Business Administration (SBA) provides resources — including loans — to business owners in order to help them succeed and grow.
If you are starting a new business or buying into a professional practice and considering funding options, an SBA loan is an option worth looking into. The SBA works with banks and other lenders to guarantee up to 85 percent of loans they issue, which lowers the risk for banks and allows them to work with business owners they may otherwise have to turn away. This is a big advantage for business owners who are just starting out and don’t qualify for a traditional business loan through the bank.
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There are additional distinct advantages to an SBA loan that we think are important for small business owners to know about.
3 Key Advantages of an SBA Loan
1. Collateral and equity requirements can be less than traditional loan requirements.
Collateral is tangible; it is something you can touch. Items commonly used by a new business owner for collateral include equipment, office furniture, computers and building space. Equity is related to what your business is worth. For example, if your business is worth $1 million and you have $500,000 of debt, your business has $500,000 of equity.
If you are just starting your business or buying into a professional practice, there is a good chance you don’t have one or either of these requirements and won’t qualify for a traditional bank loan. Having a loan through your bank that is backed by the SBA gives your bank more flexibility in approving your request.
2. Longer repayment terms.
The SBA is able to offer loans with longer repayment terms and higher borrowing limits. For example, with a real estate loan through the SBA, a small business owner can get up to 25 years for repayment on the loan. And up to 10 years on an equipment loan. This is a huge benefit to new business owners who don’t have a lot of equity built up and don’t want to feel pinched for cash flow every month.
3. Access to SBA resources.
The Small Business Administration’s mission is to help small businesses grow and succeed. They offer education and mentorship opportunities like SCORE, Office of Women’s Business Ownership, Office of Native American Affairs and more. These resources are available to all small business owners — regardless of if you have an SBA loan — and you can connect with the small business development center closest to you through SBA’s website.
Northwest Bank is an authorized SBA loan lender. If you are considering if an SBA loan is the right move for you, visit with one of our commercial banking experts to learn what your options are.
Related content - What you need to know before applying for a small business loan
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