What Are SBA Loans?

Every type of business needs financing, whether to get off the ground, operate as normal, or expand and grow. When normal sources of capital such as conventional bank loans aren't available, financing options may seem restively narrow.

That's where the U.S. Small Business Administration (SBA) comes in. An agency designed to fund and support American entrepreneurship, the SBA helps make loans accessible to small-business owners , whether those funds are used to start a company, buy commercial real estate, or cover working capital needs. 

SBA loans: What are they?

One important note is that SBA "loans" aren't really loans. The SBA does not lend money directly to businesses. Instead, it works with banks and credit unions, which then make loans that the SBA guarantees, which reduces risks and facilitates the flow of capital to businesses that need it. These preferred collaborators have to meet certain standards to offer SBA loan programs, but the framework does have some benefits for borrowing businesses, such as:

• Favorable terms and lower average rates, thanks to the federal guarantee.
• Ongoing business management counseling or education.
• Reduced approval requirements — e.g. no money down or no collateral needed — depending on the loan.

Who are SBA loans for?

SBA loans are designed to help business owners who can't find traditional financing. That means if you want to secure an SBA loan you'll need to satisfy certain eligibility criteria. These include:

• Operating a for-profit, registered business in the United States.
• Exhausting all other options for funding.
• Having equity in the business.
• Meeting SBA size standards.
• Being able to repay the loan.

Small businesses and startups are the target audiences for SBA loans, not enterprise-level operations. These financing options can be used by new and established businesses alike: An SBA loan might help start your business, or help it expand.

What can you use an SBA loan for?

What you use an SBA loan for depends in part on the type of loan you seek. The SBA has many different classes of loans, some of the most popular being:

• 7(a): Business owners can borrow as much as $5 million through 7(a) program, the SBA's primary program. The funds can be used for working capital, payroll, inventory or equipment leasing, as well as acquisitions of smaller firms. New and established businesses alike can leverage 7(a) loans.
• 504: These loans are generally more geared toward expansion through purchase of land, commercial real estate or fixed assets. Owners can get millions to buy a building, make land improvements, install long-term machinery, modernize facilities, or renovate structures.
• Microloans: Loans of up to $50,000 can be secured through intermediary nonprofit organizations, which the SBA provides funds to. The average microloan is around $13,000, and can be used to cover cash flow, start a not-for-profit child care center, buy supplies, or purchase furniture.
• Export loans: International markets can present valuable opportunities for small American businesses. The barriers to exporting can be large, however, which the SBA helps to combat with loans designed specifically for exporting businesses to use for day-to-day operations, advance orders with suppliers, and debt refinancing.

Interested in learning more about SBA loans and what steps you need to take to secure one? Talk to a local rep at Vectra Bank, an SBA-approved lender*.

*Loans subject to credit approval, SBA approval. Terms and conditions apply.