There are many different types of loans a person can take out, from many different types of lenders. For example, a college student can take a student loan from the government, from a private lender, or from the bank, whereas a new homeowner can take a mortgage out from a whole handful of different providers. Each type of loan and lender has very different payment terms, interest rates, and requirements for eligibility.
Taking out a loan for your business is no different. There are so many different types of business loans, it can be intimidating to know if you’re choosing the right one. In this series, we will talk about the 5 main loans you can take out for your business. Today we will cover one of the most attractive loans taken out by business owners: Small Business Administration Loan.
What Is a Small Business Administration Loan?
This type of loan is actually backed by a branch of the US government called the Small Business Administration (SBA), whose function is to facilitate loans taken out by small businesses. Although these loans are backed by a Federal organization, they are not provided directly by the government. Instead, private financial institutions are the lenders, and the loans are partially insured by this governmental branch. There are a variety of types of SBA loans, ranging in size for small businesses to larger firms. For the most part, these loans can be taken out by business owners with at least a 20% stake in their companies, and are typically provided by large financial institutions, as opposed to smaller lenders.
Who is a Small Business Administration Loan Best For?
This type of loan is very sought after, as the payment terms are quite attractive to any business owner. This type of loan is great for business owners with companies that have already been up, running, and profitable for some time, who need a cash boost. These lendees should have a good credit score, and bank statements to show that they have a steady revenue stream.
The Benefits of a Small Business Administration Loan
The SBA Loan is probably the most attractive type of loan for small businesses because it has flexible payment terms and very low rates. Once a business owner is approved, he will have very low fees, and will even have the option to stretch the payment terms over up to 25 years. Also, because the government is backing part of the loan, banks are much more willing to underwrite it for eligible parties.
The Cons of a Small Business Administration Loan
Because this loan is so attractive, the application process is not as simple as that of other loan types. Potential lendees must provide a lot of documentation, including proof of a good credit score and steady revenue flow, which can take time. Personal collateral is required for an SBA loan, which could but your property at risk. Also, this loan is not applicable for new businesses whatsoever.
Does an SBA Loan sound like the right type of loan for you? Get more information here.