What Are SBA Loans? The Simple Explanation

What is an SBA Loan?

SBA stands for Small Business Association, a U.S. Government agency that was established in 1953. It’s designed to boost the economy by helping small businesses get started or grow. An SBA loan does not come from the SBA directly, it’s partially backed by the federal government and issued by lenders.

When you apply for an SBA loan, the lender applies for a loan guarantee from the SBA agency. If you default on the loan, the government pays the lender the guaranteed amount, a maximum of 85% of the loan.

Types of SBA loans

There are multiple types of SBA loan programs, the most common being the 7(a) loans. Other types include 504 loans and microloans. The 7 (a) loan program includes several types of loans, such as the standard 7(a) loan, 7(a) small loan, and SBA Express Loans. The standard 7(a) is the most common in this loan family. It is typically approved in three to four months and has a maximum loan amount of about $5 million.

7 (a) loans have many uses. You can use them for working capital, buying equipment or supplies, business expansion, and refinancing existing debt. 504 loans fund real estate or heavy equipment but can’t be used for working capital, purchasing inventory, or refinance debt. SBA loans each have their own terms and conditions, which are available at sba.gov

Do you have to pay back SBA loans?

Yes, these are not government grants. When you receive an SBA loan, you are required to sign a personal guarantee that gives your lender the right to seize personal assets in the event your business cannot pay.

Do you need to put money down for an SBA loan?

You do not need money down for a 7(a) loan if you’re not buying real estate. However, it might require collateral. If using a 504 or 7(a) to purchase existing real estate, a down payment would be needed. However, all options come with closing fees which are taken out of the amount funded.

Are you thinking about getting an SBA loan for your small business?

We can help!

First Union Lending offers numerous financing programs designed with small businesses in mind. Our business loans are fast and flexible, with financing options ranging from $5,000 to $2 million.

Call today to learn more about our various financing solutions to help your business grow and become successful.