How Does SBA Loan Work and What Are Its Types

What is SBA Loan and What Are Its Types

The Federal Small Business Agency (SBA) has a loan program aimed at small businesses. It is an institution whose main objective is to provide financing options to small organizations and organized entrepreneurs. In addition to providing competitive benefits through its loan guarantee policies.

In this article that we have prepared for you, we will explain in a simple way how the SBA loan system works. Similarly, we will explore each of the programs currently available and what benefits this institution can offer through its guarantee proposals.

 

How Do SBA Loans Work?

The Small Business Administration (SBA) aims to provide financing tools to small businesses in the United States. In this way, it is committed to helping entrepreneurs in the process of starting, building, and growing their businesses. This is through an empowerment program that focuses primarily on developing circumstances for obtaining loans.

In basic terms, the Federal Small Business Agency establishes parameters to achieve a connection between entrepreneurs and the loan system. In other words, it develops a series of regulations to benefit small businesses, reducing their risk levels, so that they can obtain financing.

In summary, we can say that the SBA supports small organizations with lenders to facilitate the financing they require.

 

How to Get An SBA-Backed Loan?

The loans offered by the SBA are managed through third-party financing institutions. However, it is necessary to carry out a prior registration on the platform of this institution to access its benefits. To do this, you just have to follow the following steps:

  1. Visit the SBA website.
  2. Enter the « Financing programs » module and select the one that best suits your requirements.
  3. Next, you will need to locate the “ Lender Match ” section and enter your zip code. This will show you the lender options available in your area.
  4. Then, you must apply for your loan at the financial institution of your choice, according to the options in the previous step.
  5. Finally, upon completion of the application process, the lender will provide and help manage your financing.

Similarly, said entity also has direct loans to businesses and homeowners who have been affected by a declared disaster.

 

What Types Of Loans Does The SBA Offer?

The SBA has designed several financing options to ensure easy access to capital for small businesses. In this way, it provides alternatives adaptable to the needs of each enterprise. That is why we can currently find the following programs.

 

7(a) loans

7(a) Loans are one of the most requested programs within the SBA financial alternatives. This is because it is the program that allows access to a greater amount of capital. Since it has been designed for those businesses that require the acquisition of personal property, for example.

Through a 7(a) loan you can access credit programs of up to 5 million dollars. This is according to the economic profile of the business. In this sense, the lucrative activity of the company, its credit history, and where the organization’s operations are carried out are evaluated.

In this way, this type of loan can be used in cases such as those mentioned below:

  • Short and long-term working capital.
  • Refinance business debt.
  • Buy furniture, accessories, and supplies.

Taking these conditions into account, the lender will determine what kind of financing best suits your needs.

 

504 loans

CDC/504 Loan Services is a long-term, fixed-rate financing program. It is structured for the management of the main fixed assets. Which work as a growth tool for the business and a factor that generates employment. That is why through it you can access loans of up to 5 million dollars.

These types of loans are managed through Certified Development Companies (CDCs). Which are organizations certified and regulated by the SBA.

In this sense, the SBA CDC/504 Loans can be used in the following cases:

  • For construction:
    • Of buildings.
    • New facilities.
    • Long-term machinery and equipment.
  • For improvement or modernization:
    • lands.
    • streets.
    • Public services.
    • Parking lots.
    • Gardening.
    • Existing facilities.

To apply for a 504 Loan you must find a qualified CDC or lender.

 

Microcredits

SBA microloan programs are intended to offer to finance of up to $50,000. The purpose of this type of loan is to provide financial assistance to small businesses and certain non-profit daycare centers. So that in this way they can start and expand their activities.

In this case, the SBA provides economic funds that work through non-profit intermediary entities. Which can administer microcredit opportunities to eligible borrowers.

The eligibility conditions may vary according to the policies applied by the intermediary. Some form of collateral is usually required.

 

How to pay off SBA loans

Payment processes for SBA loans may vary depending on the type of credit requested and the conditions applied by the lender. However, some general conditions for remuneration in each class of loans are as follows:

Type of loan Conditions
7(a) loans
  • They are paid in monthly installments of principal and interest.
504 loans
  • Terms between 10 and 20 years.
  • Interest rates of at least 3% on the debt.
Microcredits
  • Remuneration terms of maximum 6 years.
  • Interest levels range from 8% to 13%, depending on the lender.

 

Payment Options for SBA Loans

To make the payments corresponding to the retribution of the loans granted by the SBA, there are several options. One of the most recommended is the use of the Pay.gov platform. However, it is also possible to make the corresponding payment through the bill payment tool in your bank account. Similarly, you can send your payment by mail.

 

Payments by Pay.gov

For this, it is advisable to create a user account on the Pay.gov page. because this way you have access to SBA payment information. That is, you can schedule frequent payments, verify the completion of payments made or update data such as your address with the SBA.

In this way, to make payments online through this platform, follow these steps:

  1. Go to the Pay.gov page.
  2. Inside the page, you need to locate the “ Make an SBA 1201 Borrower Payment ” module and click on the “ Pay it right here ” button.
  3. This action will direct you to a new page where you must complete a form with personal data.
  4. When completing this form, you will have the following options to make your payment:
    • Bank account.
    • PayPal.
    • Debit.

 

Payments by your bank account

If you want to make your payments through your bank account, follow the steps below:

  1. You must add the Federal Small Business Administration (” US Small Business Administration “) as a beneficiary.
  2. Then, you must indicate your 10-digit loan number where they ask for your account number (” Account Number “). It is important to keep in mind that the loan number is not the same as the application number. To find out your loan number, check your account statements.
  3. Next, you will need to enter a payment address, which is: PO Box 3918, Portland, OR 97208-3918. In addition, you will need to indicate a phone number, in this case, you can enter the one that appears on the front of your account statement.
  4. Finally, you can make a single payment or schedule recurring payments.

 

Payments by mail

This method can be used to execute your payment by check or money order. To do this, you can take into account the following:

  • Payment must be made payable to « US Small Business Administration «.
  • In the notes field, you are required to enter your 10-digit SBA loan number.
  • The check should be made payable to the US Small Business Administration, PO Box 3918, Portland, OR 97208-3918.

 

Verdict

The loans guaranteed by the SBA are focused on the financial support of small businesses. That is why the offers related to this institution usually offer competitive interest rates and payment installments. In addition, some of their programs also provide advice and education in the process of starting or growing your business and loan management.

The eligibility process for these types of programs is based on an evaluation of the business. In other words, the activities carried out to receive the money, the nature of its property, and where it operates are taken into account. In addition, it has financing options that range from $500 to $5.5 million, according to the type of business and the purpose of the investment.

 

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