SBA Loans & What You Need to Know

Each year, the U.S. Small Business Administration's (SBA) loan guarantee programs, along with its variety of other services, help thousands of local and less-established companies around the country find their footing. In the agency's 2016 fiscal year, its most popular loan program, the 7(a) loan, tallied more than 34,000 originations. Community Development/504 loans, as well as various other programs, also tallied several thousands of originations that year. Could your business be one of thousands that receive an SBA loan in the coming months? SBA loan requirements are specific but still include a broad range of businesses. It's important to understand these qualifications in detail before starting the application process so you don’t spend your limited time on a financing solution that's not feasible for your organization.

Basic SBA Loan Requirements

The most important SBA loan requirements for small business owners include:

  • Your business must operate for profit.
  • Your business must be physically based in the U.S. or its territories.
  • You, the owner, must have equity invested in the company.

Additional terms of eligibility and other restrictions also apply to specific SBA lending programs. Working with an experienced SBA-approved Preferred Lending Partner will help you compile a complete understanding of how your business fits and can capitalize on an SBA loan to help you reach your goals.

When To Use An SBA Loan

SBA loans, including the 7(a) loan guarantee program, can be used by eligible small businesses for a host of projects, including:

  • Working capital for routine expenses
  • Building, renovating, or developing property or land
  • Financing new equipment purchases or major repairs

The way in which the SBA-backed loan is structured by the lender might determine how exactly your business uses it. The SBA also offers options to guarantee a portion of a revolving business credit line, adding more versatility to these funding programs.

Proving Owner Equity And Other Financing Options

As you may already know, the SBA's lending programs extend a guarantee to private lenders to cover a majority of the financial losses of a qualified loan if a business can’t repay it in full. Still, lenders need to adhere to a rigorous set of standards established by the SBA before confirming that guarantee. As such, business owners should prepare to complete an extensive application and provide positive proof that they meet each of the qualifications.

For example, the SBA application includes several standard forms that will help the administration verify the capitalization of your company (who owns what portion of its assets), as well as an in-depth check of your credit history, previous tax returns, and personal background. Each of these steps will help determine the basic eligibility requirements mentioned above. Therefore, a complete and satisfactory application will show who owns the business's assets, how business equity is distributed, and where financing has come from previously (including personal credit or prior loans).

Besides these important facts, loan applicants must also make a convincing case for why they need the loan, how it will be used, and how it will be repaid. This requires a somewhat different process from preparing various financial statements but should be a top priority nonetheless.

While the SBA loan application process can seem daunting, it doesn't need to be with access to experienced lenders. As an SBA-designated Preferred Lending Partner, First Business continues to provide small business owners with the close support needed to complete the application and get to work using SBA financing to grow.