Getting a Small Business Administration (SBA) loan is a good option for borrowers who need capital to start, expand, or buy a small business. There are several types of SBA loans that are available, including lines of credit for export working capital, microloans, short-term loans, and loan guarantees. There are also eligibility criteria and guidelines for each program.
Eligibility criteria
Whether you are a new business owner or you have been in business for several years, there are certain eligibility criteria that you must meet before you can receive an SBA loan. Depending on your lender, you may be able to get a loan even if you have not been approved for other types of business loans.
Your personal credit score is one of the most important factors that lenders consider when approving you for a loan. You must have a credit score of at least 680 to qualify for an SBA loan. However, you should keep in mind that some lenders require a higher score.
Your business’s ability to repay the loan is also a consideration. The SBA requires a Debt Service Coverage Ratio (DSCR) of at least 1.15, and you must demonstrate a sound business plan to repay your loan.
You must also provide a business debt schedule, which will break down your debt by monthly payments. The schedule will also show how much principal you will owe each month and how much interest you will owe each month.
To qualify for an SBA loan, you must be in business for a minimum of two years. In addition, you must have a business that is based in the United States.
The Small Business Administration (SBA) provides a handful of loan products for aspiring small business owners. The SBA loan requirements have not changed much over the years.
Microloan program
Applicants to the Small Business Administration (SBA) microloan program must meet certain criteria. For starters, they must have a business plan. They also need to have a positive financial outlook and sufficient income to repay the loan.
Borrowers with bad credit or a history of bankruptcy may find it difficult to qualify for a Microloan. Some lenders may have lower credit requirements or be willing to work with borrowers with less than perfect credit.
Some microlenders require personal guarantees. Some may charge reasonable packaging fees. Others may charge a prepayment penalty.
The SBA Microloan Program works with hundreds of nonprofit financial institutions to help borrowers qualify for a loan. Loans are usually made to start-ups or low-income entrepreneurs. These organizations provide assistance through the entire application process.
While SBA microloans may be useful, they are not a universal solution for all small businesses. Some businesses will benefit more from a business credit card or a line of credit. Depending on the lender, interest rates will vary. Typically, they range between 6% and 9%.
For businesses that are eligible for a Microloan, the interest rate will be negotiated with the intermediary. The rates are based on the five-year Treasury rate. This can add up to 8.5 percentage points to the SBA rate.
The SBA Microloan program provides loans to veterans and low-income entrepreneurs. It is not intended to be used for real estate or debt consolidation.
International Trade Loan Program
Whether your business is struggling because of import competition or is simply looking to increase its exports, the SBA International Trade Loan Program can help. It offers a combination of fixed asset and permanent working capital financing.
Small business owners can apply for a loan under the International Trade Loan Program to acquire goods, construct equipment, or expand facilities. In exchange, the lender guarantees up to 90 percent of the loan.
This program can be used to finance inventory, production, and promotional materials. Loans up to $5 million can be secured by real estate or equipment. Typical terms are 12 months, though they can be structured for one-time export transactions or annual renewals.
The SBA understands that there is risk involved with overseas accounts receivables and inventory. This is why it offers enhanced export financing options.
The SBA International Trade Loan Program offers a maximum guaranty of 90 percent. However, the lender’s first security interest must be in the U.S. If the loan is for more than $350,000, the lender may provide a 75 percent guaranty.
In order to be eligible for a loan, a business must be adversely affected by import competition. It must also show that it is able to increase its exports. A detailed business plan is required.
The International Trade Loan Program can be used to finance equipment and facilities, improve existing facilities, and refinance debt with reasonable terms.
Short-term loans
Whether you’re looking to expand your business, purchase equipment or restructure existing debt, SBA short-term loans can help you meet your business goals. However, before you start applying for a loan, you should be sure you understand the different types and how they work. Getting the right SBA partner is important.
To qualify for a SBA loan, your business must be able to demonstrate that it has a sound business plan, industry experience and a solid financial position. SBA loan requirements can be relatively less stringent than those of a traditional bank. However, there are some limitations. For example, a borrower must be current on all payments for 12 consecutive months.
Loans are typically structured with the SBA providing at least 40% of the project costs. Lenders also assess a variety of other factors when evaluating a borrower’s qualifications. They will assess the borrower’s credit history, equity, and ability to repay the loan.
A variety of SBA loan programs are available, from the SBA Express loan to the SBA Export Assistance Loan Program. These programs are designed to help businesses expand into export markets. There are no caps on the amount of money you can borrow, and you can use the funds to purchase equipment or buy inventory.
There are also SBA disaster assistance loans designed to help small businesses recover from disasters. Businesses that qualify can borrow as much as $5 million and repay the loan over 30 years.
Lines of credit for export working capital
Using a line of credit to finance an export transaction can be very beneficial. It allows companies to buy products and services and take on new business. It is also useful to help stabilize cash flow issues for exporters.
The Small Business Administration (SBA) has two programs that can help small businesses get export loans: the Export Express and Working Capital Loan Guarantee programs. Both programs provide lenders with up to 90% guaranty on loans.
Working capital lines can be used for both inventory and accounts receivable. These are revolving loans that can be extended for up to three years. They are also available in several different international currencies.
When using a line of credit, you will need to pay interest on the balance every month. However, you can pay the balance down over time, using your cash flow. If you do not have sufficient cash flow, you may need to take other risk mitigation measures.
An exporter can also use a line of credit to secure credit insurance. This can protect the company from nonpayment by the buyer.
When applying for a line of credit, you will need a clear understanding of all of the terms of the loan. In addition, you will need to prove that the loan will support your export activities.
For many businesses, the ability to access working capital is a key component to maintaining their operations. However, unexpected large orders can put an extraordinary strain on a company’s working capital.
Loan guarantees
Providing small businesses with capital is one of the key missions of the Small Business Administration (SBA). To achieve this goal, the SBA has created a variety of loan programs that provide financing to small businesses.
The SBA’s 7(a) loan guarantee program is its flagship program. The program provides small business owners with access to long-term fixed rate loans. The maximum loan amount is $5 million. It provides a competitive loan process and faster closings.
The program is also helpful when the collateral for a conventional loan is lacking. Some small businesses may not be able to obtain a conventional loan because of their small size. In these cases, SBA loan guarantees can be a useful tool.
The SBA also has a 504 loan program that is designed to help small businesses acquire major fixed assets. These loans are meant to spur job creation.
The SBA has made some big moves in recent years. The most recent change was to expand the loan program to mission-oriented lenders. These organizations, which are primarily nonprofit financial intermediaries, focus on economic development in underserved communities.
The SBA has also changed the way its loan guarantee program works. It now requires a full review of the applicant’s assets before making a decision. This may involve a lien on the home of the business owner or a personal guarantee on a portion of the business.
Check out how to apply for an SBA loan
