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SBA (7A) Small Business Loan Guide

What is a small business loan? 

A small business loan is a loan that is partially guaranteed by the government and offered by banks and other lenders in partnership with the Small Business Adminstration (“SBA”). They are offered to small businesses to help with any working capital needs and can be used to help cover any expansion or startup costs. Traditionally, when small businesses were looking for financing, the first place they would turn to was to their bank. As more options have come about, bank loans now have a reputation for being difficult to qualify for and being slow to fund in comparison to other alternative financing options 

 

Small Business Loan Application Process 

The application process for a small business loan from a bank can be a bit stressful and discouraging. The SBA minimum requires for a business loan to be defined as a “small business.” According to the SBA, a small business has fewer than 1,500 employees. Additionally, they must make no more than $38.5 million in annual revenue.  You must also operate for profit, invest your own finances into the business before seeking assistance, have good credit, and do business in the United States. If you check all these boxes and any other requirements specific to the loan you are applying for, the process from approval to funding usually takes from thirty days to multiple months.  

 

The small business loan application process tends to be done online and can be lengthy and complicated.

The small business loan application process tends to be extensive.

 

Types of small business loans  

7a loan 

A 7a loan is the most common business loan the SBA offers. This loan will be used for working capital, purchasing real estate, refinancing existing business debt, and more. The maximum loan amount is $5 million, and most term loans are repaid with monthly payments. However, these loans require a whole checklist of items to submit in your application. Some of these items include a borrower information form, financial statements, a detailed list of any affiliates, a business license, loan application history, a business overview and more. Unfortunately, even after the lengthy application process, it is quite difficult to qualify and can typically take 60-90 days to be approved.  

 

504 loan 

A 504 loan is a loan offered by the SBA and provides long-term, fixed rate financing for small businesses. Along with the minimum requirements mentioned above, your business must have a tangible net worth of less than $15 million and have less than a $5 million average net income after taxes. This loan is specifically given to promote jobs and growth. Therefore, it can be used to build new infrastructures or make improvements on existing ones.  

 

Microloans 

A microloan provides up to $50,000 for small businesses and can be used for working capital, inventory, fixtures, and more. The maximum repayment term is six years and interest rates vary from 8-13%. Other than the SBA minimum requirements, eligibility varies by lender and all set terms are also decided by these lenders.  

  

Businesses need to weigh their options to consider if any SBA loans are right for them.

Determine which, if any, SBA loan is right for your business or explore other options.

 

Consider options other than a small business loan  

If you are a small business in need of financing, but do not want to go through the lengthy, complicated process or are not eligible for a small business loan, you still have multiple options. You may apply for alternative finance which includes invoice factoring, merchant cash advance, purchase order financing, revenue-based financing, and more. These alternative options require minimal paperwork for an application. If approved, businesses can often get working capital within twenty-four hours. At CapFlow Funding, we work with you to ensure you receive the financing that is best for your company. Without having to wait months to get it.  

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