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Scale Bank is an SBA Preferred Lender.

What is an SBA Loan and How Can It Help Your Business?

What is an SBA Loan, and How Can It Help Your Business?

A Small Business Administration Loan, or SBA Loan, can be a great solution for businesses who may need a more flexible structure than conventional financing. Because SBA loans are guaranteed by the government, which protects the lender if a business owner can’t repay the loan, these types of loans are more likely to be approved. 

SBA loans can be a cost-effective way to access capital because they typically offer longer repayment terms (and therefore smaller ongoing payments), and typically require much lower down payments than conventional financing. 

There are certain milestones in the growth of a business that present prime opportunities to consider SBA loans.  Here are a few common uses:

  • Purchase of Owner Occupied Commercial Real Estate
  • Business Acquisition or Partner Buyout/Buy-in
  • Building Renovation or Leasehold Improvement
  • Debt Refinance
  • Purchase of Equipment
  • Starting a Business
  • Expanding a Business
  • Working Capital

There are certain criteria a business must meet to be eligible for an SBA loan:

  • The business must be organized as a for-profit business. The SBA doesn’t restrict based on corporate form; sole proprietorships, partnerships, LLCs, and corporations are all eligible entities.
  • Businesses in most industries are eligible to seek SBA loans. However, there are a few excluded businesses, including gambling, rare coin and stamps dealers, real estate investment firms, and other lending businesses.
  • To qualify for an SBA loan, the business must be physically located and doing business in the U.S. or proposing to do business in the U.S.
  • When applying for the loan, the business must demonstrate a need for funds and share how the funds are intended to be used.
  • The applicant company must meet the SBA small business definition for their industry. Size is typically gauged by the average number of employees over the last 12 months and/or annual revenue. The limits vary by industry.

Most SBA loans have a collateral requirement that is personally guaranteed by the business owner. Because the SBA guarantees a portion of the loan for the lender, the collateral requirements are typically less than the total value of the loan. 

If you meet the criteria listed above and have a need for funds, it could be time to talk to your banker about an SBA loan. 

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