SBA loans have numerous advantages for the small business owner who needs money for capital expenses or to make long-term improvements to his or her business. Examples include business owners who want to buy the building they currently lease, invest in new ideas or purchase upgraded equipment that will help their business run more efficiently.
There are three main types of SBA loans. The 7(a) has the greatest flexibility for how the money is spent. The 504 loans were created to specifically help business owners purchase land and long-term equipment. Microloans have a 6-year note for up to $50,000 and can be used to get a business through a lean year.
SBA loans often don’t have as many requirements as traditional bank loans. Business owners need not have as much solid equity invested. With an SBA loan, the lender understands that it’s important to keep as much capital as possible flowing through the business.
Longer repayment terms also make it possible to keep more money working for the business rather than the headache and worry of making high monthly payments. It’s also possible to arrange the prepayment terms so that there is no penalty for paying the loan off early, incentivizing the industrious capitalist to work harder and potentially save more money.
Regulations for who can apply for an SBA tend to be more flexible. If your for-profit company has a net worth of less than $15 million and your post-tax net income is less than $5 million, then you may fit the bill for an SBA loan.
Low-interest rates are also an attractive feature of SBA loans. Fixed interest rates are amortized so that there is no balloon payment at the end of the loan. You will know upfront exactly how much you owe each month.
The Small Business Administration department is a government agency, and most of its resources are free. Because they do not provide you the loan themselves (rather they connect business owners to lenders), they are free to offer all sorts of unbiased resources and educational materials. For example, even if you don’t end up with a loan through the SBA, you can still apply to get a business mentor through SCORE or specialized training through either the Office of Women’s Business Ownership or the Office of Native American Affairs.
There are many positive aspects to getting an SBA loan over other types of loans from other types of lenders. It is worth researching to see if your business can take advantage of what’s offered.