Small Business Loans in the USA : A Complete Guide
Success in any field needs proper planning and execution. Similarly in business, the same applies. Apart from this, One main thing is capital i.e. money. If you want to start a small business then you might be thinking of taking a small business loan to start or grow the business. But do you know that, everyone who is starting or wants to expand his/her small business, will get a small business loan easily? The below guide will clarify, who is eligible for a small business loan and the process involved.
What is required for Small Business Loan (Eligibility Criteria)
There are different types of Small business loans in the USA, like 7(a) loans, 504 loans, and microloans,, These are guaranteed and controlled by the U.S. Small Business Administration (SBA). It is easy for small businesses to apply for & get such loans but they need to fulfill certain eligibility criteria:
General Eligibility:
- Meet SBA size standards: Normally fewer than 500 employees for most Small Businesses or for some non-manufacturing businesses the criteria is to have average annual receipts of less than $7.5 million ( Check here )
- Non-profit status: Non-profit organizations are usually ineligible but microloans can be given to Non-profits by some community development corporations and intermediaries.
- Demonstrate own effort: Before asking for such loans, it is expected that you have invested your own time and resources in the business. The SBA wants you have seen other financing options also. This shows your commitment and efforts that put in your business independently before taking SB help.
- Repayment ability: The business has to provide a solid plan to repay the loan.
The business needs to provide a proper plan that reflects your ability to repay the loan. , this SBA expects. This can be done in some steps like, a proper business plan, financial statements, tax returns, and other relevant documents - Business purpose: Ensure your business has a legitimate and viable purpose. The SBA does not provide loan guarantees for speculative or illegal activities, gambling, network sales, or related to charitable or religious causes. Additionally, loans are not guaranteed for businesses engaged in lending, investing, or insurance activities. To be eligible for SBA loan guarantees, it is essential to have a proper and lawful business purpose.
Who is not eligible for SBA loan?
Suppose that as a business owner, you have fulfilled all the above criteria you may still be ineligible for an SBA-guaranteed loan. You have to clear below criteria on What disqualifies me from a SBA loan?:-
Criminal record: If you, as a business owner, are currently or previously in any criminal or illegal activity then the SBA cannot guarantee loans for your business.
Defaulted federal debt: Loans may not be guaranteed if you, as a business owner, have defaulted on any federal debts, including student loans, taxes, or government contracts.
Previous SBA loss: If your business has previously caused a financial loss to the government through a prior SBA loan or guarantee, then you will be not eligible for an SBA loan.
Types of Small Business Loans
In addition to the general criteria mentioned earlier, each type of SBA-guaranteed loan has its different eligibility requirements. Let’s take a brief look at the three main types of SBA loans:
1. 7(a) Loans:
This is a common SBA loan, that is suitable for different business needs. Such as equipment, inventory, real estate, debt refinancing, etc. & the maximum loan amount is $5 million .
Eligibility Criteria
- Business Operates within the USA or its territories.
- Maintain reasonable invested equity.
- Checked & explored alternative financial options before Taking SBA help.
- Showcase a genuine need for the loan.
- Be current on all existing debt obligations to the government.
2. 504 Loans:
These are long-term fixed-rate loans suitable for purchasing or improving major fixed assets like land, buildings, machinery, or equipment.The maximum loan amount is $5.5 million per project (or up to $16.5 million for certain energy-efficient or manufacturing projects), and interest rates are typically below market rates.
Eligibility Criteria
- For-profit company i.e. not for Non-profit organizations.
- Require a net worth of > $15 million(less than).
- Maintain an average net income of less than $5 million after taxes for the preceding two years.
- Must have at least 51% of the property for existing buildings or 60% for new construction.
- Creates new jobs , also retention of jobs.
3. Microloans:
These are smaller loans ( $50,000 ), best for suitable supplies, furniture, fixtures, machinery, etc. Interest rates may vary depending on the lender and borrower’s creditworthiness.
Eligibility Criteria
- Operate as for a profit company.
- Must have a solid business plan, also demonstrate management experience.
- Provide collateral and/or a personal guarantee.
- Such business has done business training and technical assistance from a microloan intermediary.
How to Apply
How to Apply for a Small Business Loan in the USA
If you have passed the above eligibility criteria , further step is to find a lender that offers SBA-guaranteed loans . Use the tool to identify the lender as per your need: SBA Lender Match Tool
Once identify a suitable lender, you need to fill an application form with necessary documents . The documents needed may vary depend on the lender and the type of loan. Below are some commonly document:
- Personal and business credit reports
- Personal and business tax returns
- Personal and business financial statements
- Business plan and projections
- Business licenses and permits
- Legal documents like articles of incorporation, bylaws, contracts, leases, etc.
- Collateral appraisal and/or personal guarantee
In the next step, your application and documents will go for a review process by the lender, who will check, whether the application can be approve or reject . You make ask for additional information or clarification by the lender . If your loan is approved, you’ll receive notification with the necessary terms and conditions, including the loan amount, interest rate, fees, repayment schedule, etc. Alao you have to sign a loan agreement before getting the loan.
Conclusion
A small business loan can help the businesses to grow. However looking at certain criteria, not all small businesses can qualify for such loans. Also one needs to find a suitable lender & and fulfill the lender’s necessary terms & and conditions
If you’re planning to apply for a small business loan then Check your eligibility via SBA’s online tool: SBA Loan Eligibility Tool
You can also contact your local SBA district office or resource partner: Local SBA Assistance for more help .
We hope that this blog post has provided you a valuable information.
References: SBA Loans