7 Reasons to Get an SBA Guaranteed Loan

What is an SBA Guaranteed Loan

A guaranteed Small Business Administration loan is not a guarantee of approval. Rather, it is a guarantee from a U.S. government agency with the full faith and credit of the U.S. to a private lender insuring a majority of the loan should the borrower default. SBA loans fuel economic development. In 2019, the SBA approved 58,000 loans and issued $28 billion in funding, according to the SBA.  The amount will surely be higher in 2020 because of the CARES Act, which infused an additional $376 billion in funding in response to the Coronavirus pandemic. The SBA issues many different kinds of loans, but what their loans have in common is that the terms and rates are better than most other lending options. 

SBA Loan Options 2020

Standard 7(a): As the name suggests, it is the most common loan the SBA issues. Qualified small businesses can obtain up to $5 million in borrowing, negotiate for interest rates in single digits, and pay as little as 0.25% of loan amount in fees. The SBA doesn’t require collateral for loans less than $25,000 and approves most loans within 10 business days. 

Other SBA 7(a)loans offered include small, express, export, international trade, preferred lenders, veteran-owned small businesses, and non-revolving and revolving lines of credit.  

Disaster Assistance Loans: The SBA provides these low-interest loans to small businesses, non-profits, renters, and homeowners in a federally declared disaster zone. Businesses can qualify for up to $2 million in funding; homeowners can qualify for up to $200,000; and renters and homeowners can qualify for up to $40,000 to replace destroyed or damaged personal property such as vehicles and furniture. The SBA provided more than $3 billion in loans to victims of 2017’s Hurricane Harvey. 

Coronavirus Relief Options 

This year, Congress infused more money into the SBA loan programs through the CARES Act to address the economic crash resulting from the pandemic. The two primary funding options at small businesses’’ disposal to combat the economic downturn are the Payroll Protection Plan and the Economic Injury Disaster Loans.

• Payroll Protection Plan: The PPP is by far the more recognized name. Small businesses could apply for loans to cover payroll, thereby keeping people employed. The key feature of this plan is that the loans are forgivable. Unfortunately, the SBA stopped taking applications in August. Congress is at a standstill negotiating new funding for the PPP, but small businesses continue to cry out for an additional lifeline. Congress may inject new funding after the November election or when a new Congress takes office in January. 
• Economic Injury Disaster Loans: These loans are still available. Small businesses that lost revenue due to the Coronavirus can qualify. EDIL’s are not forgivable like the PPP but can be applied to normal operating expenses. Interest rates are $3.75% for businesses and 2.75% for non-profits. Term is 30 years, and no fees are required.  

7 Reasons to Choose an SBA Loan

1. Availability: While prospective borrowers will have to meet requirements set by the SBA and complete a lengthier application than from a private lender, SBA loans are available at most lending institutions. Since the federal government bears much of the risk, private institutions are more than happy to provide more financing than they would without government backing. The SBA assists with finding local lenders. 
2. Best rates and terms: Since the purpose of the SBA is to provide relief and not make a profit, borrowers will get the best rates and terms from these loans. The downside is that they are available only to those with good credit, but for qualified borrowers, terms include up to $5 million in long-term loans at the prime interest rate with a maximum 2.75% interest rate added. 
3. Low and zero down payment and fees No down payment required for loans of $50,000 or less. Fees are lower than most loans. Veteran-owned small businesses pay no fees on loans up to $150,000. 
4. Repayment options: SBA allows repayment for microloans up to six years and up to 25 years for real estate loans, terms not available for loans not backed by the SBA. 
5. Variety: The SBA offers nine different types just for its 7(a) loan program from $50,000 to $5 million to address small business needs from payroll to international trade. 
6. Assistance to underserved markets: Through its Community Advantage program, the SBA provides loans to low and moderate-income communities, businesses operating less than two years, rural areas, and women and Native American-owned businesses. 
7. Collateral requirements: SBA doesn’t require lenders to take collateral for loans up to $25,000 and provides guidelines to lenders for amounts greater than $25,000.  The guidelines are based upon the SBA’s desire to assist small businesses, not make a profit. As one of their own report’s states, “when loan servicing and liquidation activities are necessary, they should reflect a balancing of SBA's interest in: (1) achieving the goals of the loan program, i.e., helping entrepreneurs start, build and grow viable small businesses; and (2) maintaining the integrity of the loan program, i.e., ensuring that the Agency can maximize its recovery if the Borrower defaults on the loan.”

SBA loan approval can be an arduous process for small businesses to maneuver. ROK Financial provides SBA loan and other lending assistance within seconds. Learn more about ROK Financials’ SBA loan options.