A loan from the Small Business Administration (SBA) can help a new company find its financial footing, help an established company pursue business growth, provide relief in a disaster, and cover several other types of financial needs. One of the most notable things about getting an SBA loan is that the government guarantees payment of up to 90 percent of the loan if the lender should default.
The SBA takes this risk because it recognizes that new and growing businesses are essential for the overall health of the economy. Getting an SBA loan is an attractive option for business owners since the interest rates tend to be lower and the repayment terms more generous than a standard business loan. However, these aren’t the only ways that the two types of loans differ.
A More Intense Application Process
Overall, people applying for an SBA loan have a riskier credit and financial profile. This means that they can expect to complete a lot more paperwork than they would if they received a business loan from a traditional lender. A wait of 60 to 120 days for final approval is not uncommon.
Besides the greater risk, borrowers also need to consider that the SBA is a government institution. Because of this, lenders must follow numerous regulatory guidelines when processing and approving loans. Some banks become frustrated by the long process and stop offering SBA loans as a result.
Easier to Qualify
Despite the sometimes cumbersome process of applying for an SBA loan, it is much easier to gain approval for one after submitting the required paperwork and financial documents. Although the SBA does not require collateral to receive a loan, applicants should list any collateral they have. Borrowers should also be prepared to provide a personal statement guaranteeing repayment of the loan. Anyone who owns more than 20 percent stock in a company must sign SVA loan documents as well.
Are you considering applying for SBA loans? If so, we encourage you to schedule an appointment with Capital Connex today.