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Everything You Need to Know about SBA Loans

Getting funding to start a business can take some creativity, but if you’ve already got an established business, consider applying for a Small Business Administration or an SBA loan to plan your expansion process. While the SBA isn’t quick, these loans can be used for long-term investments.

Community Focus

When you take out an SBA loan, you’re borrowing from a local bank that will lend you funds that will then be guaranteed by the SBA. If you already have a strong relationship with a local bank, check to see if they offer SBA loans and get an application started so you can move quickly, or at least as fast as the SBA moves.

SBA loan interest rates are often lower than other forms of credit, but experts with Lantern Credit recommend looking elsewhere for fast funding. SBA loans “can take time” unless you’re willing to pay the SBA express loan interest.

Combine Hard Money Private Loans with SBA Loans

For maximum flexibility, a business owner would do well to build relationships with hard money or private lenders that can give you a bridge loan for quick purchases. For example, if you plan to visit an auction and look for machinery and equipment that can help you expand, your exact cash needs will be unknown until you make your purchase. Stopgap funding will make the purchase possible; an SBA loan will make the purchase affordable over time.

Check Local Maps

There are funds available at 5% or less through loans to underserved regions and markets. If you’ve applied for an SBA loan in the past and had a hard time getting approval, consider investing in an area that’s available for a Community Action Loan. These loans are not tied to balance sheet or available collateral but must be located in a region that is struggling and slated for improvement by the SBA. If you’re looking to expand your physical footprint, start another facility or make any other expansion but credit or collateral is an issue, consider a targeted area.

Fixed Vs. Adjustable Rates

With the prime rate so low, you may be better off getting an adjustable-rate 7(a) SBA loan. You will pay between 4 and 5% interest for a loan of ten years or less unless the prime rate goes up a great deal.

Disaster and COVID Protections

The SBA really is about helping small business owners keep their doors open even if things fall apart. Since many businesses struggled so badly in 2020, the SBA offers both a disaster loan with a 3.75% interest rate for small businesses and a Paycheck Protection Program or PPP for businesses struggling to meet utility and payroll costs.

If you choose to apply for either of these loans, make certain you

  • track how the money was used
  • include documentation such as copies of bills and form 941
  • be ready to turn these documents over when you file for PPP forgiveness

Recommendations from lenders suggest that your requests for forgiveness should be submitted as late as possible without missing the deadline in the event that you need to borrow more. However, carefully review all of your PPP submittal data before you delay so you don’t miss your request window.

Veterans can also get special SBA loan rates, and their spouses are also eligible for consideration.

The SBA must do due diligence to make sure that your business can, in fact, pay back the loan that they’ve guaranteed. Their loan application process isn’t easy. Consider applying with a clearing-house or a bank that can help you keep a loan app on file which you can update when you know how much you want to borrow to speed up the process.

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