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An SBA loan is a small business loan that’s guaranteed or ‘backed’ by the Small Business Administration of the United States government. The SBA itself does not give the loan, it only sets standards by which certain loans by banks or other financial institution quality for repayment by the government in the event you default on payments, which will reduce the risk for the bank or financial instruction and result in getting you to qualify for better rates and terms.
In essence, or for the purposes of comparison and explanation, the SBA operates much like the FHA (Federal Hosting Administration). For instance, persons who qualify for an FHA loan are given special advantages on down payments, finance rates, and in effect, easier qualification requirements for the same reason; the loan is backed by the US government, so banks and other financial institutions have less risk which will allow the borrower to qualify with less than average collateral and a much lower down payment (2-3%).
While SBA loans offer some obvious benefits over traditional loans and other working capital solutions, they are slightly more difficult to obtain than a conventional small business loan or merchant cash advance such as one from a factoring service. For instance, businesses that are looking to receive funds that are backed by the Small Business Administration will require additional paperwork and vetting of the applicate and its business plan and business model. Unlike conventional loans which make their decision largely on prior credit ratings and cash-flow as far as repayment ability, the SBA will factor in additional vetting such as the character of the businesses principle owner or owners (those who own at least 15%), and whether or not the business is located and operating in the United States and its US territories.
Another challenge when it comes to getting an SBA loan or otherwise having your loan guaranteed by the SBA, rather than a conventional loan or merchant cash advance, is that not all financial institutions or banks are qualified as SBA approved lenders. For banks or other financial instructions that do not quality to offer SBA loans, they may suggest an SBA loan as less than ideal based solely on their inability to provide them, so it’s best to research the general qualifications for an SBA loan prior to speaking with a financial advisor, or at minimum, asking the opinion on an SBA solution, based on your circumstances, only with an SBA approved lender, this way you can rule out any conflict of interest.
Additionally, the Small Business Administration has nearly 2000 SBA offices around the country which are willing to provide consulting and guidance on what and how small businesses can benefit from assistance through the Small Business Association and these offices are more than happy to help entrepreneurs find out if they qualify for an SBA backed loan, or even help fill out the application. Additionally, these offices can help determine if there are other benefits or grants which may be available for your small business depending on a wide variety of business related functions.
To find an office near or around your city and state visit