Starting a Business Using an SBA Loan
Calling all entrepreneurs – first-timers, amateurs, and battle-hardened veterans! This article is for anyone starting a business but who lacks the capital or collateral to bring this dream to fruition. Your taco truck or eCommerce business does not have to just live on a napkin or in your head. It can become a reality!
Peak Business Valuation is here to help you in the process of starting a business! But first, we need to introduce you to the Small Business Administration (SBA). The SBA is a federal agency that supports small businesses. It provides entrepreneurs with educational resources and financial assistance for launching a business. To start a business using an SBA loan, finding a quality SBA lender is key.
Our team works with over 90 SBA lenders across the nation. We can connect you with a lender relevant to your industry and growth stage. As a certified business appraiser, we are also familiar with the SBA lending process. In addition, we offer feasibility studies to determine if your business idea is feasible. To free your business dreams from the confines of imagination, schedule a consultation! We are happy to answer your questions and guide you through the next steps of financing a startup business.
Purpose of an SBA Loan for Startups
What is an SBA loan?
An SBA loan is quite different from traditional startup financing options. Unlike the rest, a loan from the SBA is government-backed. Simply put, the SBA guarantees part of the loan. As a result, the risk of loss for the lender goes down and the chances of loan approval for the borrower go up. Both parties benefit from a sense of security and legitimacy.
Starting a business using an SBA loan is not the only way. There is crowdfunding, angel investors, venture capital, traditional bank loans, and more. However, an SBA loan for a startup business may be the best for your situation. Financing for startups depends on several options:
- Credit score/history
- Industry risk profile
- Personal business experience
- Amount of collateral
- Business revenue projections
- Economic conditions
These factors can help you decide whether an SBA loan is the best choice for starting your business. Our team at Peak can help you assess various financing options. Each has its unique benefits, depending on the borrower.
Benefits of an SBA Loan for Starting a Business
Why should I use an SBA loan for a startup?
Here are several reasons for starting a business using an SBA loan:
- Lower Interest Rates: SBA loans often have lower interest rates than traditional loans. This makes it an attractive option for those looking to minimize borrowing costs.
- Flexible Repayment Terms: SBA loans typically offer longer repayment periods. This eases the financial burden on new businesses during the initial phases.
- Start-Up Capital: Many entrepreneurs lack sufficient personal funds to start a business. SBA loans are often a crucial source of start-up capital.
- Credit Requirements: SBA loans may have more lenient credit requirements. This offers unique opportunities to those with less-than-perfect credit histories.
These benefits can help an entrepreneur get on their feet. Remember, these benefits depend on your unique situation. While SBA loans offer many advantages, they also come with drawbacks.
Downsides of an SBA Loan for Starting a Business
Be sure to consider the downsides of an SBA loan to make an informed decision. Here are a few potential downsides to consider when looking at SBA loans for startups:
- Stringent eligibility requirements
- Lengthy application process
- Longer approval times
- Personal guarantee
Carefully weigh the pros and cons of starting a business using an SBA loan. As such, your decision-making can best reflect the startup’s needs and circumstances. The SBA recognizes that each startup is unique and offers a variety of SBA loans for startup businesses.
Types of SBA Loans for Startups
What loan options are available for starting a business using an SBA loan?
Each type of SBA loan has its strengths to meet your startup’s needs. Consider each of the following options before pursuing venture capital or debt.
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SBA 7(a) Loan
First, the SBA 7(a) loan is one of the most versatile loans available. The maximum loan amount for the 7(a) loan is $5 million. These loans offer competitive interest rates, low down payments, and long repayment terms. This makes them a good option for financing a startup.
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SBA 504 Loan
This loan provides an opportunity to build owner-occupied commercial real estate. You can also use an SBA 504 loan to buy long-term equipment.
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SBA CAPLine Loan
Next, this small business loan can meet your short-term cash flow and working capital needs. This loan allows you to transition between busy and slow cash flow seasons. It also serves as a revolving line of credit to make recurring payments or to prepare for unexpected expenses.
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SBA Express Loan
This loan has a streamlined approval process for an easy-to-use line of credit or a term loan. The SBA Express loan can put as much as $350,000 in your hands within 36 hours.
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SBA Veterans Advantages Loan
Finally, this is for businesses at least 51% owned by veterans or military spouses.
For more information and requirements on SBA loans for startup businesses, see the SBA’s official page here.
The Bottom Line
To conclude, starting a business using an SBA loan has several advantages. They are often more accessible and flexible for entrepreneurs. Before obtaining SBA financing, consider your unique business situation and goals. This assessment can help you determine what startup financing option is right for you.
Peak Business Valuation is a certified business appraiser. We help individuals who are buying, selling, or growing a business. As you grow your startup, a business valuation can help you understand the business’s strengths and weaknesses. A business appraisal also determines a business’s fair value. This valuation is handy for determining insurance coverage, tax reporting, maximizing the value of a small business, and more. When the time is right, reach out for an official business valuation.
The team at Peak Business Valuation also provides market feasibility studies to aid in deciding whether your business idea is feasible. Whether you need help with that or selecting an SBA lender, schedule a consultation. We are happy to connect you with the right lender for financing a startup business. Schedule a complimentary consultation using the link below!
