Most often, a 7(a) SBA loan is going to have the very best rates and terms if you intend to use debt funding to finance your new business. SBA stands for the Small Business Association. This is an independent federal government agency that was set up to support small business development. The SBA boosts small business funding, by promising repayment up to 90% of SBA loans should the borrower defaults. Because the Small Business Administration offers this guarantee of payment, loan companies are a lot more likely to give loans to individuals that are not able to qualify for a conventional loan. SBA loan guarantees also result in the loan terms and the rates of interest being a lot better, too.
When you apply for an SBA loan, you need to be aware that you do not submit an application directly to the Small Business Administration. SBA loans are actually dispensed by banks and other special lending institutions. In the past, the predominate source of SBA loans for small businesses were community banks. This source of SBA loans has drastically decreased, a result of a large number of community banks going out of business in the last two decades. Concurrently, the large banks which now dominate the banking industry are more dedicated to financing big businesses as opposed to smaller ones. One group of loan providers that’s rapidly filling this void are non-bank SBA loan providers. A excellent example of one of these non-bank lenders is Newtek. Newtek is presently the number one nonbank SBA lender in the United States. In 2013, the SBA ranked Newtek as the 6th most active SBA 7(a) lender among all bank and non-bank loan providers, by lending volume. A year ago, Newtek supplied over $180 million in SBA 7(a) loans to small businesses. This had been a 68% increase from the previous year. Newtek is expecting to further boost SBA lending by over 40% in 2014.
There are several different types of SBA loans you can request. By far, 7(a) SBA loans are your best alternative. Because the SBA guarantees a larger percentage of the loan amount for 7(a) loans, the loan rates will be generally lower in comparison to other SBA loan options. Usually, the borrower is required to provide ten percent of the funding. If you’re utilizing a 7(a) loan to purchase goodwill, you’ll be expected to provide 25% of the total financing. The average SBA 7a) loan in 2011 was for $274,000. The most that you can borrow with an 7 (a) loan is $5 million.
SBA loan terms are based upon what the loaned money is used for. SBA loans utilized to finance real estate acquisitions typically require a 10% down payment and are twenty-five year loans. The SBA will normally give you ten years to pay off a loan used to obtain equipment. Working capital loans generally have a seven year term. Blending the uses of an SBA loan will often result in a better overall loan term. For example, if you use an SBA loan to acquire real estate, obtain equipment and provide working capital you can typically get a fifteen year term.
In summary, in case you are trying to get an SBA loan to finance your small business, a 7(a) SBA loan will usually turn out to be your best option. If you are going to get a SBA loan, I would recommend going with the leading provider of SBA funding, Newtek, the “Small Business Authority. Newtek can usually pre qualify you for an SBA loan is as little as 2 days. They have gone to great lengths to simplify the application process. In fact, Newtek completes the loan application paperwork for you. Get financing for as much as five million or as little as fifty thousand dollars today!
Written by: Mark J. Krupp, Cofounder of NewBusinessCreator.com