Small business administration (SBA) loans are business loans administered by private lenders but with federal backing. There are various loan programs under SBA, such as 7 (a) loans, 504 loans, and microloans. These loans are quite popular as they provide competitive interest rates, longer repayment periods, and comparatively lower fees.
However, SBA loans also have a lengthy approval process and often require personal collateral. If you are thinking about getting an SBA loan for your business, here are five factors you should consider before applying.
Credit score
A credit score is a person’s or business’s ability to repay debts. Credit scores range between 300 and 850, 850 being the highest. You need an excellent credit score, generally over 700, to get approval for an SBA loan. Other reputed organizations like Experian, Equifax, and Dun & Bradstreet also provide a credit score. You can get yearly reports from these organizations to know your credit score. If they are not up to the mark, you may have to wait for some time before you’re deemed eligible for an SBA loan.
Eligibility criteria
Your business must meet a set of eligibility criteria to get an SBA loan. For example, your business must match SBA’s definition of small business, operate as a for-profit company, and should not fall under ineligible business. You should also be up to date with all your bills, taxes, and other legal obligations.
Documentation
SBA loans require a long list of documentation with the application. It includes your personal and business tax returns, lease documents, bank statements, identification proofs, balance sheets, and other documents. You need to have all that ready before the application process. Lending companies can help you with this as they have a streamlined application process to makes things easier.
Collateral
To qualify for an SBA loan, you need to provide collateral that backs your loan amount. Collateral can be anything of value, such as business equipment, real estate, or inventory. As an alternative to collateral, some lenders can ask for a personal guarantee of up to 30%. Or they may take a blanket lien on your business assets. All of these are means for lenders to recover an unpaid loan amount in case of a default. You need to specifically ask your lender about the type of collateral they want and then decide if you wish to proceed further.
Contract terms
Not all loans are identical. Different lenders have different terms and conditions for SBA loans. Check for early payment penalties, the interest amount over the years, origination fees, monthly installment, and other factors before making a final decision to opt for an SBA loan. If you feel the limitations are more than the benefits, look for alternative financing options.
About The Cash Eaze Group
If you require help in getting an SBA loan to maintain or expand your business’s working capital, The Cash Eaze group should be your one-stop destination. Our loan approval requirements are minimal and easy to fulfill. Fill out an application form on our website, and we will get you the funds you need at the earliest. You can also reach out to us at (201) 396-5973 to know more.
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