What You Never Knew about the Small Business Administration Loans

What You Never Knew about the Small Business Administration Loans
What You Never Knew about the Small Business Administration Loans
December 27, 2016

One important thing every firm should do is to make inquiries into the different loan options available to them and look for ways they can tap into their different benefits. There are hundreds of loan options available out there with different terms and conditions of lending. The term that fits into the financial plan of one firm may not fit to another and it necessary to stick with the lender that offers the right terms.

Small Business Administration (SBA) is charged by the government to stimulate small businesses

Created under the law, the Small Business Administration is an organization set up by the government to ensure that small businesses get the desired stimulus – financial wise – that will ensure their smooth operation. If you intend starting up a small business in the United States, you should give the Small Business Administration loan a consideration.

Read also: Merits and Demerits of Purchase Money and Non-purchase Money Loans in Short Sales

The role of small businesses in the economy led to SBA loans

Over the years, the United States government has come to realize that the economy is driven by small businesses. They are the ones who grow to become employers of labor, hence, reducing the unemployment rate in the nation. They also generate revenue for the government in the form of tax. Keeping them viable therefore remains a priority.

Small Business Administration programs are not for everyone

If you plan to make the SBA an alternative lending option, you must, first of all, consider if your company falls under those that are considered by the SBA. Greater considerations are given to small businesses and startups and the efficacy of the program is sustained through an application process.

Read also: A Cash Business Loan might Just be Perfect for a Working Capital

The application process makes SBA not suitable for certain companies

High-growth technology companies may not find Small Business Administration program a viable option because the application process takes a long time. A company that needs urgent cash may not be able to wait for the long application process of the Small Business Administration program – and there is no guarantee that you would be selected at the end of the process.

SBA often serves as guarantors to loans received from third parties

Some startups may not be lucky enough to benefit from the Small Business Administration loans directly but they can benefit through the percentage the Small Business Administration offers to the loaned third party company. In this case, the SBA back up a part of the loan but you will need to find an interested lender and receive the approval of the SBA.

Read also: Looking for Ways to Finance Your Company: Try Asset Based Lending

Small Business Administration loans are capped

There is always a cap on the amount of money that can be given by the SBA program but this money is usually enough to fund a startup. However, the SBA loan is structured as debt and the company will need to generate money over time to be able to make payments on the loan. These loans are structured to aid startups but not those that are high-risk and high-growth.

Commercial banks would usually look for collateral

Commercial banks are renowned small business lenders but the problem with seeking loans from commercial banks is that they would require that you present them with a track record of your success or provide them with collateral to hold onto making them unrealistic for small businesses.

High-tech ventures can be financed indirectly by the SBA

The SBA program is not suitable for high-tech ventures as mentioned earlier but if peradventure you succeed in getting an SBA loan funding, it would come in the form of a guaranteed loan rather than a grant.

Read also: Commercial Mortgage Bridge Loan can be Your Life Saver in Various Situations

Article highlights

  • There is a cap on the amount of money that can be given by SBA loan.
  • Small Business Administration is backed by the government.
  • The work of Small Business Administration is to stimulate small businesses.
  • Not every business will fit into the Small Business Administration program.
  • Small businesses drive the economy by creating jobs.
  • High-tech and high-rise businesses are not suitable for SBA.
  • The Small Business Administration uses a selection process to award loans.
  • Guaranteed Small Business Administration can be available to high-tech ventures.
  • Small Business Administration often play the role of third party guarantor.
  • The long time take for the approval of SBA loans can make it unattractive.

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