6 Benefits of SBA Loans Important to Every Small Business Owner
All small business loans differ in terms of time of funding and application paperwork. SBA loans have a prolonged timeline for both, which might make you wonder if its advantages are really worth it.
SBA loans, long slated before lending, come with a load of advantages like low-interest rates, longer repayment policies, manageable fees and more to it; so enticing you won’t look away.
With all the advantages, however, the application process might ward you off from considering this loan option. Before enjoying these benefits, you must make sure your business qualifies for the loan. This has to be in compliance with the Small Business Administration policies.
The Small Business Administration (SBA)
This is the US body that has enabled the existence of SBA loans to small businesses. The body has a mission of promoting growth and further development of small businesses across the country.
It incorporates heaps of programs including educational support and guaranteeing bank loans for small business owners.
The SBA does not actually lend the loans themselves, but guarantees a portion of each loan, minimizing the risks for the loan company near you. This leaves the banks with a window to safely work with professional entrepreneurs.
Their role is backing up the loans by making them safer for lenders to give out.
Types of SBA loans
You might think that an SBA loan is a money sack branded with a dollar sign waiting to jolt your mega business idea to prosperity, which isn’t the case. SBA loans are of three different types, each with various terms and benefits.
- SBA 7(a) loan – up to $5.5 million in cash and 7 years’ terms
- CDC/504 Loans – up to 25 years’ terms. Mostly meant for commitments like real estate and machinery
- SBA Microloans – Maximum of $55,000 and can be repaid in 6 years.
Each of the above loans has different purposes in business, including the purchase of fixed assets and general financing. The Heritage Financing company in Bexley OH, therefore, advises that you choose wisely.
The most flexible is the SBA 7(a) loan and is also the most common business loan.
Benefits of SBA Loans against other Small Business Loans
For businesses that do not qualify for other small business loans, SBA loans are a good option in terms of loan terms, and what you can do with the money.
Among the capabilities of SBA loans that enhance the success of small businesses are:
- Low-Interest Rates
You will always get worries at how much you are going to pay in the long run anytime you acquire a small business loan.
Interests for SBA loans come lower than other loans, depending on your creditworthiness and how qualified you are for the loan.
With the standard SBA(7a) loan, you can be looking at a 6.75% loan interest rate. It’s different with the other two types of loans, but they still are an inexpensive option.
- Immediate Capital
Accessing capital from a loan company is such a “risk” most banks try to avoid. Due to this, small business owners are left in such a tough place.
This is where the unbeatable superpower of SBA loans comes in. They will allow you access to as high as $5.5 million with the 7(a) program, which is really possible depending on your qualifications.
Since the SBA co-partners with lenders, you are allowed up to 85% of the loans they offer, so banks are more willing to lend that multi million-dollar loan, than if you were taking it solo.
- Repayment Terms
There’s no gain in a small business loan if the repayment duration is going to choke your thoughts more than the help it accords while financing.
SBA loan requirements are the fairest among all small business loans. They offer repayment periods of up to 25 years for real estate, 10 years for assets and up to 7 years with working capital.
With such flexible plans, you can easily fit repayment in your business plans as the business expands.
- Low-priced Down Payments
Sometimes your lender asks for down payments depending on the type of financing you seek. Down payments are determined by the amount of money you are borrowing, the purpose of the loans and what kind of loan.
SBA loans are types of loans that require down payments, but rates are lower compared to other types of loans.
For an SBA 7(a) or CDC/504 loan, you need only 10% – 20% down payment. A down payment isn’t necessary for an SBA microloan.
- Flexibility of Use
Some types of business loans have terms which dictate how you should use up the funds allocated. It’s essential to have a plan when borrowing a loan, even with SBA loans, but sometimes business owners just need money.
You can use an SBA loan for literally anything. That flexibility has a sense of freedom that allows you to even refinance existing debt, make upgrades, buy new land and much more.