The Small Business Administration (SBA) is a government agency dedicated to serving small business owners. One of the most important ways they help small businesses is through SBA lending. An SBA loan can be a great way for businesses to gain the amount of financing necessary to find success in a competitive business environment.
Why an SBA loan?
When looking to finance your business, there are plenty of options available to small businesses. SBA loans are typically preferable to traditional bank loans, especially when it comes to small businesses. When you take out loans through the SBA, you can enjoy perks such as:
- Lower down payments: The down payment required for an SBA loan is generally much lower than a typical loan. Other types of loans can require you put down up to 30%, but with an SBA 7(a) loan or a CDC/504 loan you’ll only need a 10%-20% down payment. An SBA microloan doesn’t require a down payment at all.
- Longer repayment terms: With SBA loans, you have longer to pay off the loan than most business loans. Typically, you have up to 10 years to pay off a conventional business loan. With an SBA loan, you may have up to 25 years to pay it off. You can adjust those terms, too, as the purpose is to cater to the needs of the business rather than get paid back as quickly as possible.
- Competitive interest rates: Because SBA loans are backed by the government, they typically have lower interest rates than other small business loans.
What can you do with an SBA loan?
Some business loans come with strings attached in terms of how you can use the funds. Part of what makes SBA loans so popular with small business owners is that the funds can be used for a wide variety of business purposes. Some of the most popular ways to utilize SBA funding include:
1. Update your equipment
A great way to improve your business is by modernizing your equipment. Maybe there’s a piece of machinery that can cut down the amount of time it takes to complete tasks. Or maybe you could invest in a bigger truck that will allow you to deliver twice as many products. Whatever kind of business you’re operating there’s likely some kind of machinery out there that could make your business more efficient, saving you time and making you reach your goals quicker. According to the National Federation of Independent Businesses, 56% of business owners reported capital outlays in the last six months. Of those making expenditures, 38% reported spending on new equipment and 24% acquired vehicles. An SBA loan puts big purchases within your reach, allowing your business to enjoy the efficiencies of the latest technologies.
2. Improve your location(s)
Having the right location can drive significant business growth. However, few small business owners can fully fund a real estate purchase from their working capital alone. With an SBA loan, moving locations or opening a new branch can finally become a possibility. The competitive interest rates and long repayment terms make SBA loans a great option for funding real estate purchases. Some SBA loans can even provide a down payment of as low as 0% for owner-occupied commercial real estate. With an SBA loan, you can finally reap the benefits of capitalizing on real estate opportunities
3. Hire additional staff
As your business grows, you’ll likely need more employees to keep it running. Thankfully, SBA loans are not just for financing equipment or real estate, but can also be used to increase operating capital. 40% of small business owners claim that they are concerned about filling open positions in their business. But with an SBA loan, you can feel secure knowing that you have the financial ability to make an offer when the right candidate becomes available. Having extra cash on hand thanks to small business loans means that your business can offer competitive wages and attract quality employees that can continue to push your business ahead.
4. Manage seasonal demand
Depending on the industry your business is in, you may find that the demand for your products or services can change depending on the season. A florist may make most of their revenue during the summer and see a drop in sales when colder seasons hit. A toy store may have an overload of orders during the holiday season but then face a lull in January. SBA lending can help to give you extra funds to draw on when demands rise and also smooth out any cash flow issues that arise as demands drop.
How to get an SBA loan
Once you decide to get an SBA loan for your business, the application process is easy. To start, you’ll need to make sure that your business is actually eligible for a loan. To get more information on the SBA’s eligibility requirements, check out our blog detailing SBA loan eligibility.
If your business is eligible for a loan, then you’ll need to get connected with an SBA lender. As a Grasshopper client, getting access to an SBA loan is made simple. With our digital SBA 7(a) lending solution, you can enjoy a streamlined lending process, giving you faster access to SBA financing. For more information, connect with one of the experienced lending professionals of our SBA Lending Team.
By Michaela Lenahan in SBA Lending
