How an SBA ‘Small Loan’ Can Change the Future of a Small Business

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The SBA helps business owners secure up to $350,000 to grow and expand their enterprises. Here’s how it works. 

When it comes to the Small Business Administration’s (SBA’s) “Small Loan,” the term is relative. Small Loans are available up to $350,000 and can make all the difference for a business on the verge of growth. Here, we’ll tell you all about the SBA Small Loan and what a business owner needs to do to qualify. More importantly, we’ll cover how a Small Loan can alter the future of a growing business.

Success that builds on itself

Here are some of the ways a single SBA Small Loan can change the trajectory of a business:

A business owner with a solid plan will have the funds to expand operations.Expanded operations can lead to increased revenue.Increased revenue leads to increased profits.A thriving business can stand on its own, expanding more if the owner so wishes.With each on-time loan payment made, the business builds a stronger credit history, opening up even more opportunities.

How it works

The SBA offers seven types of small business loans, each with a specific goal. The Small Loan is for business owners that want to grow and expand their operations. It may be a business that’s been around for years, and the owner needs an influx of cash to take it to the next level, or a side hustle that grew more quickly than the owner expected it to.

No matter the type of business, a Small Loan works the same.

Application

An owner visits the SBA website to find an SBA-approved lender in their area. There may be several. Once they’ve found the lenders they want to check out, the business owner applies for a loan guaranteed by the SBA.

With that SBA guarantee in hand, lenders know that if the business owner fails to make payments, the SBA will cover the loan up to 85% for loans up to $150,000. For loans greater than $150,000, the SBA guarantees 75%.

Collateral

There is no collateral required for loans up to $25,000. For loans over $25,000, up to and including $350,000, the lender will follow its own established collateral policy. In other words, if a company of the same size as yours applies for a loan without SBA backing, any collateral rules that apply to it will also apply to you.

At the very least, the lender will take a first lien on any assets purchased with loan proceeds. It must also take a lien on all your business’s fixed assets, including real estate. However, a lender is not required to take a lien on your real estate if you have less than 25% equity.

For example, if the building in which you do business is worth $200,000 and you still owe 75% or more ($150,000 or more), the bank is not required to place a lien.

The final steps

As the business owner, you negotiate the interest rate with the lender. It cannot exceed the interest rate maximums set by the SBA.

Once you’ve agreed to the terms of a loan and signed on the dotted line, the SBA will ensure you have loan proceeds in your business checking account in five to 10 business days.

Eligibility

Not all businesses will qualify for a Small Loan. To be eligible for loan assistance, a business must:

Demonstrate a need for the loan (unable to secure a loan without SBA backing)Operate for profitFit within the SBA’s definition of a small businessBe based in the U.S. or one of its territoriesUse the money borrowed for a legitimate business purposeHave no outstanding debts to the U.S. governmentBe able to demonstrate that it can repay the loan

How the money can be used

The Small Loan can be used in a variety of ways, including:

As working capitalAs revolving fundsTo purchase equipment, supplies, furniture, fixtures, or other materials needed to grow the businessTo buy real estate for the company, including land and buildingsTo construct a new building or to renovate the existing buildingTo start a new business, acquire another business, or expand the existing businessUnder certain conditions, a Small Loan can be used to refinance existing business debt

What you’ll need to apply

You should be set to apply once you’ve gathered the following:

SBA Form 1919Personal financial statements (depending on the lender)Business financial statementsList of names and addresses of ownersResume for each principalBusiness license or certificate (if applicable)Record of any other business loans you’ve applied forBusiness income tax returnsBusiness overview and historyBusiness lease (if applicable)

As a small business owner, you’re responsible for everything from public relations to payroll. And that’s where the SBA comes in. The SBA attempts to help smooth the bumps in the road so your business does not stall.

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