Small Business Administration Loans 2021

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The Small Business Administration, or SBA, is a government entity that exists to help small businesses get loans.

How To Get An SBA Loan For Your Business

The Small Business Administration, or SBA, is a government entity that exists to help small businesses get loans. The SBA stimulates loan issuance by guaranteeing up to 85 percent of certain loans against default, which makes the program palatable to lenders.

Although there are a number of different types of SBA loans, the primary one is the 7(a) loan program. Other variants may be better suited for particular types of businesses. The SBA doesn’t offer education loans, but it does provide extensive counseling and business advice for small companies. You can visit sites like Seek Business Capital to undergo an instant SBA loan qualification check to help point you in the right direction.

To be able to offer a loan guarantee to lenders, the SBA has a set of strict requirements for borrowers. Only certain types of businesses can qualify for an SBA loan, and the application process can be comprehensive. In some cases, other financing options might be a better choice for your company, but you’ll never know until you compare small business loans with the programs offered by the SBA. Here’s a look at various versions of SBA loans, the types of companies they are best suited for and explanations of when and why other loan options might be a better bet.


How to Get an SBA Loan for Startups

For startup companies, it seems as though the Small Business Administration would be the perfect place to go for a loan. After all, there is no business smaller than a startup business, so SBA lending might seem to be the most appropriate funding option. Unfortunately, if the SBA loaned money to every single startup, it would likely take so many losses that it wouldn’t exist any more. Just like with any type of loan, you have to qualify for an SBA loan, and many startups wouldn’t pass the test. In fact, SBA loans are all but unavailable to true startups with no operating history. But, fear not, as specialty capital sources like Seek Business Capital are available to fill the financing void for startup companies and new businesses.

How Does It Work?

Companies like Seek Business Capital work by linking businesses that can’t easily get traditional financing, such as startups, with other sources of capital. Specialty finance companies typically offer business consultants to help startup companies understand their available financing options and walk them through the process of acquiring funding. Oftentimes, companies like Seek Business Capital can offer flexible funding arrangements to startups until they get their companies off the ground.

What Are the Rates?

The good news is that even as a startup company, you’re likely to be able to find funding somewhere. The bad news is that your financing rates are likely to be high. Lender finance is all about risk/reward; as a new company with no established track record of paying back debts, your financial profile will most likely be on the risky end of the range. In order to be enticed to take on that risk, lenders will usually require a high interest rate as compensation.

If you shop around, however, you may be able to find special offers for new businesses. Seek Business Capital, for example, offers an introductory 0% APR to help get you started, although this rate will vary when the promotional period ends.

Am I Eligible?

In a general sense, startups aren’t as likely to be eligible for a business loan of any kind, including an SBA loan, as more established companies. The financial metrics that loan officers use to qualify companies for a loan, including a history of profitability and a long history of paying back loans on time, don’t match up well with most startups.

Yet, not all startups are alike, and not all banks have the same qualification standards. Specialty finance companies, in particular, understand the financial life cycle of startups and are willing to offer loans in certain circumstances.

Your company’s financial picture isn’t likely to win over many banks or finance companies on its own. However, if you have a well-crafted business plan, you might begin to see some results. Although a great business plan on its own isn’t enough to make you eligible for an SBA loan, it can garner interest from some lenders. The key is to show that your company has a clear —and preferably rapid — path to profitability. Remember, lenders are most interested in your ability to pay them back. If you can show that your product or service is a winner right from the get-go, you’re more likely to be eligible for financing.

On top of this foundation, you’ll likely need to have a good personal credit history to help your startup qualify for a loan. This is particularly true if you are the sole proprietor of a brand-new startup. With no business track record, lenders have to rely on something, and that very well may end up being you personally. In some cases, you may be asked to sign a personal guarantee of the loan, although you’ll want to consult with an attorney or other advisor before you commit to something that significant. At the very least, having a good personal credit history will be a data point for lenders to assess whether or not your startup company is a good financial risk for them.

In one sense, being locked out from traditional loans issued by bigger banks can be a blessing for some startups. Working with a specialty finance company like Seek Business Capital means you’ll have access to a lender that focuses on your area of the market and understands the unique challenges you may be facing. Just remember that even specialty lenders need to be paid back, so the stronger you can make your business plan and the more reliable your personal credit history is, the more likely you are to find a lender.

How Much Can I Get?

Success in business often comes down to asking the right questions. When it comes to financing for a startup, the right question isn’t necessarily “How much can I get?” as much as “How much should I ask for?”

The last thing you want to do as a startup is to immediately take on a huge loan. If you overextend yourself when it comes to borrowing, you’re committing a huge chunk of your potential cash flow to loan service payments. Even if you execute your business plan perfectly, having huge payments due every month can sap the ability of your business to grow, or even function. Overextending yourself financially could doom your business right from the start, even with the good execution of a great idea.

This is another reason why it’s often a good idea to work with lenders that specialize in startup companies. You can work with professional consultants to determine not just how much you can get, but how much you can afford. In the case of Seek Business Capital, startups can get loans as high as $500,000 in some cases. However, most new companies can only get — and should only borrow — a much smaller amount. The important thing is to get the financing you need but to only take on as much as your business can realistically afford.

What Documents Do I Need?

The irony of finance is that the companies most in need of documentation when it comes to obtaining financing — startups — are the ones least likely to have it. Lenders prefer to see comprehensive financial statements showing years of rising cash flow and profitable tax returns, but as a startup, you obviously don’t have those kinds of records. So, what will you need? Any documentation you have that puts your business in a good light, both currently and going forward, should be supplied to any potential lenders. At a bare minimum, you should expect to provide these types of documents:

  • Your personal Social Security number
  • Your personal credit history
  • Your company’s business plan
  • A written declaration of how you intend to use your loan proceeds

For many lenders, this will be just the starting point. As a startup company, you may very well be asked to provide some collateral for your loan, in the form of company or personal assets. As mentioned above, you may also have to sign a personal guarantee.

What Are the Terms?

You shouldn’t expect generous terms when you apply for financing as a startup. Lenders are taking on added risk by financing your company, so in addition to higher interest rates, you’ll likely face a short-term loan repayment period as well. You may be able to work out more advantageous for flexible repayment plans with different lenders, so don’t be afraid to shop around for the best deal. Remember that once you get through your first loan, subsequent loans are likely to be more favorable for your company. Every loan you pay back in full and on time will improve your company’s credit profile. Over time, you may end up qualifying for SBA financing.

Newer Companies (Non-Startup)

How to Get an SBA Loan for Newer Companies (Non-Startup)

If your business is up and running but you don’t yet have a few years of financial statements yet, an SBA microloan may be a good option. As a newer company, you likely can’t qualify for larger loans just yet. However, this is the area that SBA microloans are designed to serve.

How Does It Work?

An SBA microloan essentially works like other types of SBA loans, just with different restrictions and requirements. Microloans are arranged between lenders and small business borrowers, but the SBA does not guarantee microloans. Loans are limited to small businesses and certain non-profit childcare centers. Unlike some other types of SBA loans, microloans cannot be used to purchase real estate or to pay existing debts. Proceeds can be used for working capital, furniture or fixtures, machinery or equipment, or inventory or supplies.

What Are the Rates?

Interest rates on microloans vary, depending on the lender. Rates generally run between 8 percent and 13 percent.

Am I Eligible?

Even though a microloan is small by definition, you’ll still need to show the ability to pay it back. Lending requirements in the SBA Microloan program are determined by individual lenders, as there is no SBA guarantee of payback. Typical qualification requirements may include the following:

Businesses with operating histories of two or more years:

  • Positive cash flow
  • Moderate-to-good credit
  • Sufficient collateral

Newer businesses may have additional qualification requirements, including:

  • Two years of industry experience
  • A 25 percent capital injection
  • A secondary source of repayment, such as collateral or a co-signer
  • Earnings sufficient to cover personal expenses
  • A business plan showing reasonable growth projections and assumptions

As with all loans, the greater the financial capacity you can demonstrate, the more likely you are to qualify.

How Much Can I Get?

The maximum loan amount for an SBA Microloan is $50,000.

What Documents Do I Need?

Documentation for all SBA loans can be extensive. For microloans, you’re required to work with a local, SBA-approved intermediary. These intermediaries are the ones who will make the credit decisions regarding your microloan approval.

In addition to typical SBA loan requirements, such as cash flow statements, tax returns, profit and loss statements, balance sheets and other financial documents, your microlender may require you to undergo training or business planning before your application can be considered. This training is designed to help your business succeed, which in turn reduced the risk for the microlender.

What Are the Terms?

Terms are based on a number of factors, including the loan amount, the planned use of the funds and the needs of the borrower. Additional terms may be determined by the individual lender. Under the terms of the program, however, the maximum loan repayment time is six years.

Companies With Consistent Revenue

How to Get an SBA Loan for Companies With Consistent Revenue

Companies with consistent revenue may or may not have long operating histories or good credit. That may serve as an impediment to getting a small business loan or even an SBA loan. However, strong and predictable cash flow is a huge asset to a company. You can leverage that asset to generate financing in the form of a merchant cash advance.

How Does It Work?

From the perspective of a merchant cash advance provider, your strength as a company isn’t your credit history, but rather your revenue stream. A merchant cash advance isn’t really a loan as much as a sale. In exchange for upfront cash, you sell a portion of your future incoming receipts to the buyer. Although this may feel like a loan, in the sense that you get money right away and then pay it back over time, you’re really just getting an advance on your incoming sales — hence the name, “merchant cash advance.”

What Are the Rates?

Although merchant cash advances are certainly expeditious and convenient, they can be expensive. As a general rule, the faster you can get your money, the more expensive it is. Think about a credit card vs. a traditional loan, for example. With a credit card, you get money immediately, but you’ll often pay double-digit interest rates, whereas a traditional loan may take days or weeks to get funded, but often at a lower rate. A merchant cash advance qualifies as “fast money” from this perspective, and it carries a correspondingly higher interest rate.

Merchant cash advances are usually quoted in terms of a factoring fee, rather than an annual interest rate. Factor rates often run between about 1.14 and 1.18. Converted to an annual interest rate, that equates to about 14 percent or more. Merchant cash advances are usually paid back fairly rapidly, however, which is part of the reason they aren’t quoted on an annual basis. But you should expect to pay 1 percent or more on a monthly basis for a merchant cash advance. Unlike with traditional loans, your merchant cash advance rate will be based more on the dependability and size of your monthly receipts rather than your prior credit history.

Am I Eligible?

Eligibility requirements for a merchant cash advance focus more on the quality of your incoming revenue as opposed to your credit history. This can make a merchant cash advance an ideal source of funding for companies with poor or average credit but with regular sales. If your sales are irregular or infrequent, you may not be eligible for a merchant cash advance; however, with a large amount of monthly sales, particularly predictable or recurring sales, should be enough to qualify you for a merchant cash advance.

How Much Can I Get?

The amount of money you can get from a merchant cash advance will be tied directly to the size of your incoming sales. Since you’re selling a portion of your future receipts, you won’t receive a merchant cash advance larger than the revenue you’re generating. Typically, you’ll only get a percentage of your future sales, not 100 percent.

It’s important not to overextend yourself with a merchant cash advance because while you’ll get money up front, you’re paying for that cash out of your future cash flow. If your revenue isn’t enough to cover the amount that you borrowed, your company’s cash flow will effectively be eliminated.

For example, let’s say that you generate $50,000 in monthly cash flow and decide to take a cash advance for $40,000. Theoretically, your next month’s cash flow can easily cover the amount you owe on your merchant cash advance. But imagine if you lose a large customer, or there’s a weather event that slows sales, or there’s just a general slowdown in the economy and your next month’s revenue drops to $20,000. In that case, you don’t have enough to pay off your merchant cash advance and may end up borrowing more, all at very high interest rates. This is a long-term recipe for disaster for a company.

These are all things that should factor into the equation of how much to ask for using a merchant cash advance. You should probably consult with your financial or tax advisors to help make this calculation.

What Documents Do I Need?

Another benefit of a merchant cash advance over a traditional loan is that the documentation requirements are typically less. Rather than having to demonstrate the long-term health of your business and your credit history, you’ll just have to show future sales that will cover your merchant cash advance.

With the reduced paperwork requirements, you can often apply for a merchant cash advance online and receive your money in a matter of days or even hours. However, even though the process isn’t as difficult as with a traditional loan, you’ll still need to provide some documentation, such as the following:

  • Cash flow statements for your business
  • A voided business check
  • Your driver’s license
  • A credit card processing statement
  • Business tax returns

Additional documents may be required, depending on the requirements of the merchant cash advance provider. In terms of the overall picture, however, your business cash flow will typically be the most important factor.

What Are the Terms?

Since a merchant cash advance is a relatively expensive type of funding, you’ll generally want to pay it back as rapidly as possible. In many cases, you can pay back your merchant cash advance on a rolling basis, with your subsequent month’s revenue paying off the amount you borrowed the prior month. However, you may be able to extend full payment for a few months, depending on the terms of your agreement. Unlike with a traditional loan, there’s no down payment required with a merchant cash advance. You may have to pay setup or ongoing maintenance fees, however, in addition to regular interest charges.

Companies With Fixed Assets

How to Get an SBA Loan for Companies With Fixed Assets

If your company is asset-intensive, it likely means that you’re constantly buying additional real estate or heavy equipment. For businesses like this, the SBA has a special loan program, known as the 504 Loan Program. This type of SBA loan has special terms and features that can be particularly attractive to companies looking to renovate or acquire additional commercial real estate or other fixed assets.

How Does It Work?

An SBA 504 loan is a partnership between the borrower, the SBA a private-sector lender and an SBA-Certified Development Company, or CDC. Usually, 50 percent of project costs are fronted by lending partners in the form of a 10-year senior loan at a fixed or variable rate. Borrowers must front 10 percent of the project costs, with the remaining 40 percent covered by a fixed-rate debenture from the SBA CDC. This debenture is secured with a junior lien from the SBA and 100 percent guaranteed.

What Are the Rates?

Since a 504 loan has a lot of moving parts, the interest rate is a blend. Rates are marked up at a certain increment above the current five- and 10-year U.S. Treasury rate and are fixed for the life of the loan. However, the rate is blended between the CDC loan rate and the SBA loan rate, which can help make these types of loans more affordable for borrowers.

Am I Eligible?

Like all SBA loans, your business has to qualify as a small business to avail of a 504 loan. For the SBA 504 Loan Program, a small business is defined as having a net worth under $15 million and a net profit after taxes of under $5 million. Most types of for-profit businesses are eligible, including wholesale, service, retail and manufacturing companies.

You can use a 504 loan to purchase fixed assets such as the following:

  • Land and improvements (including owner-occupied)
  • Street improvements
  • Utilities
  • Grading
  • Construction of new facilities
  • Parking lots and landscaping
  • Renovation or modernization of existing facilities
  • Purchase of long-term equipment or machinery with a useful life of 10+ years

You can also roll certain soft costs into a 504 loan, such as loan interest and fees, appraisals, legal fees, environmental studies or architectural fees.

How Much Can I Get?

The SBA debenture portion of a 504 loan can generally reach up to $2 million, although some manufacturing businesses may be eligible for a $4 million debenture. Combined with the CDC portion of a 504 loan, this means you can finance up to a $10 million project: a $5 million first mortgage from a private-sector lender, age, a $4 million SBA 504 debenture and your $1 million, 10 percent down payment.

What Documents Do I Need?

Since the SBA guarantees a portion of a 504 loan, documentation requirements can be extensive. On top of all the traditional requirements to qualify for a loan, such as good credit, profitability and operating history, you’ll need to check all the boxes that the SBA requires of its borrowers. These include having a personal financial stake in your business, operating it for profit and being of good character. The backgrounds of your company’s management team will likewise be vetted by the SBA.

From a documentation standpoint, you should expect to have these types of documents handy when you apply for an SBA 504 loan:

  • Borrower information form
  • Business certificate or license
  • Personal background and financial statement
  • Business financial statement
  • Loan application history
  • Resumes for each principal in the management team
  • Income tax returns for at least two years
  • Business overview and history
  • Business lease

The assets of the financed project will act as collateral. Personal guarantees of at least 20 percent are also required from borrowers. Additional documents may be required by specific lenders, or for larger loan amounts.

What Are the Terms?

SBA 504 loans generally require a low down payment of 10 percent, although a smaller down payment is possible in certain select instances, such as if a municipality is willing to kick in funding to attract businesses. Most loans are for 10 years, although 20-year maturities are also available.

Companies With Good-to-Excellent Credit

How to Get a Business Line of Credit for Companies With Good-to-Excellent Credit

If your company has good-to-excellent credit, you can likely qualify for an SBA loan, but a traditional loan with a big bank may still be your best bet. With top-tier credit, your qualification process is likely to be simple, and you may be able to negotiate better rates and terms with a larger bank directly.

How Does It Work?

A traditional loan can be less work for companies with top-tier credit to get than an SBA loan. By the time your company has been around long enough to establish good credit, you likely already have a good working relationship with a bank. You can leverage this relationship to get better rates and terms on your traditional loan.

Typically, a traditional business loan will have a specified term, often between 1 and 5 years, with regular payments required along the way. Interest will accrue along the way.

What Are the Rates?

With good-to-excellent credit, you can usually get great rates on a traditional business loan. General rates may start in the 7 percent range for a no-collateral loan, but if you back up your loan with assets or have a significant relationship with your bank, you can usually pull that rate down.

Am I Eligible?

Top-tier credit entitles you to a wide variety of loan options, including a traditional loan from a bank. The more important part of the qualification process will be determining which type of rate you can get, rather than whether or not you can obtain a loan at all.

How Much Can I Get?

Most lenders will only offer to lend you an amount that your business can easily afford to pay back. Although lenders may advertise small business loans of $1 million or more, larger amounts are reserved for companies generating significant cash flow. Although having top-tier credit will no doubt qualify you for a business loan, the amount of the loan will be more tied to your profitability, cash flow and other financial metrics than just your good credit.

What Documents Do I Need?

Even companies with top-tier credit have to demonstrate via documentation that they have the financial ability to repay a loan. Lenders will require documents outlining the business particulars of your company, which may include the following:

  • Business Tax returns
  • Company cash flow statements and balance sheets
  • Business bank statements
  • Profit and loss statements
  • Net worth statements

These documents may be just the first step. Each individual lender will determine what documents are required for approval.

What Are the Terms?

When you first set up your business loan, your terms may be flexible, but they’ll generally be locked in once you receive your funding. Loans generally run between 1 and 5 years, but they can be longer or shorter depending on what you can negotiate with your lender. Interest charges begin accruing immediately until the loan is paid in full. You should aim to get a loan with no prepayment penalties so that you can pay off or refinance your loan at any time.

Companies With 3-4 Years of Financials

How to Get an SBA Loan for Companies With 3-4 Years of Financials

If your company has survived for three or four years, you’re likely past the stage where most lenders will avoid you, but you might not quite be at the stage where you have access to any type of financing you’d like. Even if your business is profitable and thriving, some of the more traditional banks may still prefer to see a few more years of financials before offering you good rates on an unsecured loan. In this case, the Small Business Administration, with its 7(a) loan, may be your best course of action.

How Does It Work?

With the exception of Silicon Valley unicorns, in most cases, a business that has survived for three or four years is firmly in the “small business” segment. When it comes to financing, this can be a good thing, as the SBA 7(a) loan program is specifically tailored to small businesses that are up and running but that still can’t quite get financing from traditional banks.

SBA 7(a) loans aren’t actually funded by the Small Business Administration. Despite the names, SBA 7(a) loans are agreements between banks and borrowers, just like with traditional loans. However, part of the reason for the program’s popularity, particularly from the perspective of the lenders, is that the SBA guarantees up to 85 percent of a loan’s value. This takes enormous pressure off lenders, as they know they won’t be risking the full principal amount of loans they make. This encourages more lending, which is the overall aim of the program.

This guarantee is the reason that the SBA won’t generally lend to businesses that haven’t been operating for at least three years. However, once your business has crossed into the third or fourth year, you’re in the sweet spot for the SBA 7(a) loan program.

What Are the Rates?

One of the plusses of the SBA 7(a) loan program is that there isn’t a lot of mystery. The SBA publishes its maximum loan rates and terms so both borrowers and lenders understand the playing field. Currently, this is what the SBA 7(a) loan interest rates look like:

Loans Less Than 7 Years

  • $0 - $25,000 Prime + 4.25%
  • $25,001 - $50,000 Prime + 3.25%
  • $50,001+ Prime + 2.25%

Loans 7 Years or Longer

  • $0 - $25,000 Prime + 4.75%
  • $25,001 - $50,000 Prime + 3.75%
  • $50,001+ Prime + 2.75%

These rates are typically lower than businesses in the three-to-four-year range can get from unsecured lines of credit or other forms of financing.

Am I Eligible?

The SBA Loan Guarantee only protects lenders, not borrowers. As a business, you are not guaranteed to qualify for a loan under the SBA 7(a) program, but you are invited to apply based on your company’s financial merits. Just as if you were applying for a traditional loan, you’ll have to qualify based on your credit profile, operating history and other financial metrics, such as cash flow and profitability.

In addition to these traditional financial measures, you’ll have to meet the SBA’s minimum qualification requirements. The three-legged stool of eligibility includes having a sound business purpose, demonstrating the financial capacity to pay off the loan and qualifying as a “small” business. Other supplemental requirements include personal investment in your business and the inability to obtain financing elsewhere.

So, what exactly is a “small” business? By the SBA’s metrics, most businesses with annual revenue of $1 million or less and 100 or fewer employees can qualify as a “small” business. However, the specifics can be a bit more complicated. In some larger industries, companies with revenue of up to $41.5 million can still be considered “small” businesses; similarly, some companies with as many as 1,500 employees can also qualify as a small business.

How Much Can I Get?

Just like the SBA defines maximum loan rates and terms, it also limits loan sizes. However, with an upper limit of $5.5 million, the program limits are likely sufficient for most small businesses. In fact, most small businesses won’t likely even qualify for that top amount of $5.5 million, unless they have significant financial capacity. Regardless of whether or not your business can qualify for that amount, you should limit your request to the amount that you actually need. Overextending your business financially could act as a drain on your company’s cash flow. When you add in interest payments on top of the reduced cash flow, overborrowing could financially cripple your company. When applying for an SBA 7(a) loan, worry less about the maximum that you can get and instead focus on the amount that your business can realistically put to use.

What Documents Do I Need?

Due in part to the SBA guarantee, documentation requirements for an SBA 7(a) loan can be extensive. For starters, you’ll need to demonstrate you’re a person of good character and that you’re operating your business to generate a profit. You’ll also need to prove you’ve got good credit and the ability to pay back your loans. The background of your company’s management team will also be taken into consideration. Here are specific documents that you’ll have to provide when applying for an SBA 7(a) loan:

  • Borrower information form
  • Business certificate or license
  • Personal background and financial statement
  • Business financial statement
  • Loan application history
  • Resumes for each principal in the management team
  • Income tax returns for the last three years
  • Business overview and history
  • Business lease

If you’re buying an existing business, you may need to provide additional documentation.

Think of your SBA 7(a) loan application just as if you were applying for a traditional loan: You’re more likely to be approved by showing as many documents as possible highlighting the financial strength of your company.

What Are the Terms?

SBA 7(a) loan terms are well-defined by the Small Business Administration. The longest terms available are 25 years, but those only apply to real estate loans. The typical SBA loan have a maturity of between five and 10 years. Loan terms longer than seven years are hit with a 0.50% interest rate premium.

Established Companies With 5+ Years of Consistent Revenue

How to Get an SBA Loan for Established Companies

Established companies with at least five years of consistent revenue are in the catbird seat when it comes to financing. These types of companies have everything that lenders look at in terms of reducing risk: a long operating history, demonstrated profitability and cash flow, and a history of being able to pay back loans. With this type of credit profile, your business likely has access to any type of financing. Although an SBA loan may still be an option, with this type of power, a business line of credit is often the best, cheapest option.

How Does It Work?

In some ways, a business line of credit operates like a credit card, just better since interest rates are typically much lower. A business line of credit is a (usually) unsecured loan that is available whenever you need it. Until you draw on it, it remains available, with no interest yet accruing.

What Are the Rates?

Rates on a business line of credit can be low, due in part to the fact that not all businesses can qualify for one. Particularly with unsecured lines of credit, approval is reserved for companies that have significant cash reserves, free cash flow and impeccable credit. As such, rates can get as low as the prime rate + 1.75% for business lines of credit, and perhaps even lower.

Am I Eligible?

Eligibility for a business line of credit is a near certainty for established companies with at least five years of profitability. You won’t get approved simply by walking through the door — you’ll still have to apply for the line and your lender will have to review your business and credit profiles — but you’re likely to get approved for a significant amount at a low rate.

How Much Can I Get?

In one sense, the sky’s the limit as to how much financing you can get as an established company. For example, if you’re a multibillion-dollar company with 10 years of rising profits, a $5 million credit line would be easy to obtain; if you’re only pulling down $100,000 per year in profit, however, you should temper your expectations accordingly.

As a business with a high level of profitability, the more challenging aspect of financing may be to choose the right amount to borrow rather than to worry about how much you can get. On the one hand, getting a huge line of credit can give you the peace of mind that you can handle any financial needs, from short-term fluctuations in cash flow to opportune chances for expansion. However, having a huge line of funding at your immediate disposal can also lead to undisciplined spending if you aren’t fiscally responsible. When seeking a business line of credit, try to keep your maximum drawdown limit in line with what your business can reasonably support.

What Documents Do I Need?

Even though your company may have significant financial resources and is likely to qualify for a business line of credit, you’ll still have to go through the application process. To qualify for any unsecured loan, particularly a large, unsecured line of credit, you’ll need to prove that you’re a great credit risk. You can only do this through documentation of your past and present ability to pay back your loans. You should expect to provide these documents for your application, at the very least:

  • Business statements of profit and loss
  • Company tax returns for at least three years
  • Your business balance sheet, net worth and cash flow statements
  • Business bank statements

Different lenders may require additional documentation.

The good news is that in the case of established businesses, additional paperwork can usually only help. With a clean credit history, solid operating history and large cash reserves, you should be able to negotiate the best rate available on your line of credit.

Unlike some other types of loans, you won’t likely be able to complete a business line of credit application over the internet. You should be prepared to bring your documentation to a loan officer in person, particularly for larger lines.

What Are the Terms?

Terms of business lines of credit are usually flexible. Your line will stand ready for you to draw down on your own schedule, with no interest charges accruing until you actually use the money. However, you may face fees before you even draw on the line, such as origination or maintenance fees.

Once you begin drawing on your line, your repayment schedule will kick in according to the terms you agreed upon when you established the line. You’ll generally be required to make minimum monthly payments immediately, with the loan being paid off in full within a predetermined number of months or years. In some cases, your line may operate on a revolving basis, like a credit card, with no specific maturity date.


FAQs About SBA Loans

SBA loans are an important source of funding for many small businesses, but there’s still a lot of mystery about how they operate and who can qualify for them. Here are some of the most frequently asked questions about SBA loans and how they operate.

What Is An SBA Loan?
An SBA loan is a financing option that matches small business borrowers and lenders. In exchange for a partial loan guarantee, lenders work to provide needed funds to small business borrowers.

Technically, there are six different types of SBA loans: 7(a) loans, microloans, CDC/504 loans, CAPLines, export loans and SBA disaster loans. However, 7(a) loans are the most commonly discussed type of SBA loans.
How Do SBA Loans Work?
An SBA loan involves three parties: the lender, the borrower and the SBA. The SBA doesn’t actually issue an SBA loan, in spite of the name. Rather, the SBA works to facilitate loans between small businesses and lenders by guaranteeing up to 85 percent of SBA loans against default. This entices lenders to participate in the program, thereby generating more funding for small businesses.
Who Qualifies For SBA Loans?
To get an SBA loan, you’ll essentially have to go through two rounds of qualification. First, you’ll need to meet the SBA’s minimum requirements, which include meeting the definition of being a small business, having a financial interest in your company and not being able to obtain financing anywhere else. Then, you’ll have to qualify for a loan per the standards of an individual lender. Factors like your credit score and the operating financials of your company will play a large role in whether or not you can get an SBA loan.
How Long Does It Take To Get An SBA Loan?
The entire SBA loan process from start to finish generally takes between 60 and 90 days. This time frame can vary based on the specifics of each individual loan.
Is An SBA Loan A Good Idea?
Whether or not an SBA loan is a good idea is a multi-part question. The first part of the equation is whether or not getting a loan in the first place is a good idea. This will depend on the capital needs of your business and your ability to pay back what you borrow. The second question is whether an SBA loan is a better option than other types of available financing. This will depend on a number of factors, including your ability to obtain other funding, the amount you can get and the rates you’re offered, among other factors. Lastly, you’ll have to decide if you want to work with the financial institutions that are willing to offer you a loan. For example, some companies might offer you bells and whistles like a business loan app and a loan signup bonus, but if they’re not flexible with their terms and charge higher interest rates than you can get from competitors or alternative sources of funding, then you may not want to accept the SBA loan offer.
Who Qualifies For Personal Loans For Business?
Any type of financial arrangement has both pros and cons. An SBA loan is no different. Here’s an overview of the most notable pros and cons of an SBA loan:

Can offer financing for companies that otherwise cannot raise capital
Can offer lower rates than other options

May not be available for newer companies
Application process can be thorough
Can be less flexible than other sources of financing
Require personal guarantee

SBA loans can provide financial lifelines for companies that can’t raise capital from other sources. However, they can be hard to qualify and can require a lot of paperwork, along with a personal guarantee. For some companies, an SBA loan may be the best option, but for others, lower rates and less restrictive terms may be available.
How Can I Get A Better Interest Rate On My SBA Loan?
The rate you can get on your SBA loan is directly tied to the financial strength and history of your company. Although the SBA sets the maximum rate that you can be charged in the SBA loan program, the specific rate you get is determined by an individual lender. Just as if you applied directly with a financial institution, you’ll have to demonstrate solid financials and excellent credit to get a low rate on your SBA loan. High cash reserves can also help get you the best available rate. If you don’t qualify for a low rate on your first loan, you may get a better rate in the future if you successfully pay off your original loan and improve your credit profile.