Small business owners often require financing to start or grow their businesses. 

The challenge is that for many small or startup businesses, irregular cash flow, limited business history, or poor credit can be insurmountable barriers to obtaining a small business loan.

There are several alternative avenues entrepreneurs can take to secure financing to fuel their growth, including Small Business Administration loans offered by community-focused financial institutions like AltCap.

The U.S. Small Business Administration (SBA) is a government agency that helps entrepreneurs secure funding through SBA loans. 

These loans are designed to provide affordable and flexible financing options to small businesses that may not qualify for traditional bank loans. In this guide, we’ll explain everything you need to know about SBA loans.

What are SBA loans?

SBA loans are provided by participating banks, credit unions, and other lenders, but they are partially guaranteed by the SBA. The guarantee reduces the risk for lenders, making it easier for small businesses to obtain financing. The SBA offers several loan programs, each with its own requirements and terms.

The most popular SBA loan program is the 7(a) loan program, which provides general-purpose loans of up to $5 million to small businesses. Other SBA loan programs include the CDC/504 loan program, which provides financing for fixed assets, such as real estate and equipment, and the microloan program, which provides loans of up to $50,000 to small businesses and nonprofit organizations.

So how do SBA loans work?

To obtain an SBA loan, you’ll need to apply through a participating lender. The lender will evaluate your creditworthiness and business plan to determine if you qualify for financing. If you do, the lender will submit your application to the SBA for approval. Once approved, the lender will disburse the funds to you.

SBA loans generally have longer repayment terms and lower interest rates than traditional bank loans. The exact terms and interest rates depend on the loan program, the lender, and your creditworthiness.

What are the eligibility requirements?

To qualify for an SBA loan, you’ll need to meet certain eligibility requirements. These may vary depending on the loan program, but generally include:

• Your business must be located in the United States and be for-profit

• Your business must meet the SBA’s size standards, which vary by industry

• Your business must have a sound business purpose and be able to demonstrate repayment ability

• You must have invested your own time and/or money into the business

• You must not have any delinquent debts to the government

More resources

The SBA provides loads of information on how entrepreneurs can better position themselves to secure a small business loan. Here’s a helpful guide on how to prepare your business for a loan. And here’s a some relevant information for minority business owners, women-led businesses, rural businesses, Veteran-owned businesses, Native-American owned businesses, and LGBTQIA+ businesses.

Conclusion

While the application process can be complex, SBA loans can be a valuable source of financing for small businesses. They offer affordable and flexible funding options that may not be available through traditional bank loans.

As with any financial decision, it’s important to do your research. Make sure you work with a lender that has experience with SBA loans and will have your best interests at heart. With the right preparation and guidance, an SBA loan can help fuel your business and entrepreneurial dreams.