Understanding Small Business Administration (SBA) Loan


Gone are those times when people waited for money lenders to lend money for them. Times have changed and there is increasing number of banks both nationalized ones and private ones who are lending out money according to the requirements of the borrower.

The Small Business Administration loans are not loans; they are only used to back the loans. In other terms, they do not lend out any money but just back other loans.

Many people have lots of confusion about the Small Business Administration loans which keeps them away from applying for an SBA loan.

Here are some basic things you need to understand regarding the Small Business Administration loans. There’s a reason on why you need to clearly understand the SBA loans.

This can help you in deciding whether SBA loan is suitable for your business or not.

Read on!


Different banks have different programs for SBA

Just because an old friend of yours recommended you to take an SBA loan from your bank because she or he had taken it and it turned out to work wonders for them, it doesn’t mean it’s going to work out the same way for you.

Different banks have different sets of programs of SBA and your friend’s bank might have different plan outlays from your bank.

So, before jumping into making the decision of buying or not buying an SBA loan – understand the SBA programs followed by your bank.

The best way of knowing the SBA programs of your bank is to get in touch with the bank manager and ask him or her to educate you about their plans.

There are specific SBA plans that are specifically targeted towards providing the commercial real estate funding.

Some of the loan programs under SBA loans include 504 for commercial real estate loans, 7(a) for general loans for small businesses, disaster loans, and microloans. But again, this list is an inclusive one and not an exhaustive one.

These are some of the most common SBA plans but these are not the only ones. So it’s always a wise idea to have a direct meeting with one of the bank employees or the bank manager and know all the information that you’ll need.


Different banks have different lending requirements

This one goes unsaid because this is the real scenario for most other loans too.

All banks will have a different set of lending requirements and they are not going to lend you money based on uniform rules.

Some banks have an altogether different way of conducting the Know Your Customer procedure.

So while you’re thinking of applying for an SBA loan, know that you must have a talk with your bank manager or a senior employee to get a clear picture of the lending requirements they’re looking for.

Some banks also have a separate set of bank policies according which they finance commercial real estate loans.


The Small Business Administration does not indulge in direct lending business

The SBA offers different types of loan programs for different specific purposes. When you’re applying for an SBA loan, although, you’re required to apply through a bank, you don’t do it directly through the SBA.

The math is simple here.

The bank is the body that’s going to provide you the actual loan. The bank shall have its own set of policies to deduct standing expenses or interest amounts according to their set policies.

The role of SBA here is only to the extent of guaranteeing the recovery of a partial portion of the loan to the other bank. In other terms, we can say that SBA is acting as a co-signer.

What’s the advantage of SBA acting as a co-signer for you as a borrower?

SBA acting as co-signer will increase the confidence of the bank people on you and their lending requirements will be made more flexible!

Especially when you’re looking out for commercial real estate refinance, you’ll need a large amount of money and if you don’t have or don’t want to mortgage any of your property, the second best way is to gain the trust of SBA and apply for an SBA loan.

The banks become much more flexible when it’s an SBA loan and your loan will be processed in much lesser time than how much it would have taken otherwise.


SBA loan programs are also handy to old businesses

It’s a common notion that SBA loans are issued only for the new businesses. SBA loans were started with the main intention of easing out the process of loan granting.

So the SBA loans do not have any soft corner towards new businesses only. If you haven’t applied for SBA loan thinking it’s only there to help the new businesses, it’s time you break the myth now and fix a meeting with your bank manager today to know the lending requirements.

SBA loan will first be approved by the issuing bank only after which the other bank will start explaining you’re the further steps.


Want better terms of your loan? Time to apply for an SBA loan

Most of you must know that in a lot of cases, you may not be able to meet the lending standards that are set by most of the local banks.

There can be a lot of issues due to which a particular business owner cannot match the lending standards.

A few of them could be recent changes in the business ownership, the principals of business who are suffering from having a very low net worth, past history of business partners who have defaulted in making the repayment of loan principal amount or the interest amount, cases where a partner was declared as an insolvent by the court, a shortfall in the collateral security that’s needed in order to finance a secure loan and so on.

There are many reasons due to which even well-performing business owners fail to match the lending requirements set by banks.

That’s the reason SBAs have come into the picture. These loans are designed for these people who may not be able to meet the high lending standards of the banks.

Thus, you’ll get better terms of the loan. And the process of loan granting becomes more flexible for you.

In other words, the lending requirements standards will be lowered and you can escape fulfilling some of the requirements.

Thus if you’re getting rejected by banks because you’re unable to meet their high lending requirements, it’s time you apply for an SBA loan and get the best terms of your loan!


SBA loan definitely requires more paperwork

One of the common misconceptions people have about the SBA loan as soon as they know that these loans get the best terms, is that they think these loans have very minimal paperwork.

Let us face it, most of us hate paperwork! Especially roaming with the documents from bank to bank when the process of loan granting is going on is definitely a pain for everyone.

But just because an SBA loan helps in increasing the flexibility of the loan, it doesn’t mean there’s escaping of the paperwork.

In fact, there’s more paperwork when you apply for an SBA loan. In addition to the regular documentation work, banks will also require specific SBA loan requirements.

These requirements are only there for SBA loans. And there’s a reason there’s more paperwork in this case as the banks are already being lenient in financing your loan.

The specific requirements for SBA loan required by most banks are an SBA application, personal financial statements, federal business tax returns pertaining to the previous 3 years, financial statements of the business relating to previous 3 years, cash flow projection of the following one year, a detailed business plan, information including the addresses of all the owners of the business, a detailed explanation on how the SBA loan will help the business along with estimated figures and so on. These are just some of the documents required.

Some banks will also demand an affidavit given by the gazette officer stating that the detailed proposed plan given by you regarding the usage of the SBA loan is genuine and trust to the best of their knowledge.

Thus, an SBA loan will have more paperwork than other types of loans. But once this paperwork is done, you can rest assured that the further loan granting processes will become much simpler and your loan will be processed much faster!

These are some of the basic things you need to know in order to understand the SBA loans. One of the biggest advantages of these SBA loans is to the commercial real estate owners who are looking for a reliable lender and who are looking for refinancing loans.

The SBA loans will require some paperwork from your side, and you’ll be able to skip a lot of other rigid steps and the entire process of loan granting becomes much easier for you! So what are you waiting for? Apply for an SBA loan today!

Want to learn more? Get in touch with us today.

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