Being a small business owner is a tenuous position for many Americans. When faced with dozens of demands on your time, energy, and, of course, money, how do you balance the needs of everyone you work with on a daily basis? Doing well doesn’t necessarily decrease these demands either—often times it has the opposite effect. So, if your business is succeeding and you’re looking to expand, but lack the liquid assets to make that possible on your own, we can help! This is one of those times when being a small business has its distinct advantages.
The U.S. Small Business Administration (SBA) actually funds a special program to help the “little guys” qualify for help and grow with especially lenient terms. You just have to do a little more work to meet the standards for this type of arrangement. One of the first things you must do is verify your status as a small business. Now this sounds relatively simple; however, the SBA actually has different standards for different industries. For example, most mining or manufacturing companies should be below the threshold of 500 employees to qualify. However, nonmanufacturing companies could require much fewer employees to satisfy their standards. Unfortunately, the criterion for consideration doesn’t solely rely on employees; they can also look at a business’s net worth or average annual income. Thus, if you have a smaller staff, but a larger book of business, you may encounter issues down the road. To learn more about your particular field’s requirements, please visit the SBA’s website: https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/guide-size-standards. Once these standards have been met, we can look more closely at the types of SBA loans available to you.
When most people think of an SBA loan, they’re really referring to the flagship program now known as a 7(a) loan. This can be used to fund expansions, buy new equipment, or simply increase the amount of capital available to the business in amounts up to $5 million. Though it’s offered through various partnered banks, lenders, and credit unions, it’s federally insured at higher levels than traditional loans. There’s also the 504 program, which has the same $5 million ceiling, but is made to be used for different purposes. Primarily, these funds are available for the purchase of land, machinery, and/or new facilities. In order to access this program, you also have to use specific private lenders or nonprofits; it’s not as widely accessible as the 7(a) loan.
If your financial needs are significantly less, then the microloan program might be a better fit. It sets the cap at $50,000 for those small businesses who are just forming, and looking for start-up capital, inventory, and/or equipment. Usually, to qualify for this, you must apply through a community-based nonprofit organization, which, in theory, should know more about your local needs. Last, but not least, the SBA offers disaster loans, which, as the name would imply, should only be accessed in the wake of natural disasters or other emergency situations. This particular kind is handled directly by the SBA, and can provide relief up to $2 million. If you’d like to learn more about these various loan products, here’s a great resource for you: https://www.nerdwallet.com/blog/small-business/small-business-loans-sba-loans/. Ideally, all of the SBA loans are offered at interest rates that are more manageable for smaller employers than taking an advance on your credit card or obtaining a hard money loan.
Many factors determine your overall interest rate and APR, including the amount of the loan, the type you choose, and the overall life of the loan. You’ll see some fluctuation depending on the lenders, but the SBA regulations typically mitigate that. The length of the repayment term will vary based on the purpose of the funds. For example, if you’re planning on using the loan to cover everyday expenses or provide working capital, then you typically have up to 7 years to pay back that amount. However, if you’re using the loan for a real estate transaction, such as buying new land or office space, then you typically have up to 25 years to repay the money in full. Ultimately, these terms are designed to give small businesses a leg up in a competitive marketplace. If you’re thinking it’s all a little too good to be true, that’s probably because we haven’t discussed the application process yet.
Once you’ve decided to apply for an SBA loan, you will need to start amassing lots of paperwork. Here’s an abbreviated list of things you’ll need:
- SBA’s borrower information form
- Statement of personal history
- Personal financial statement
- Personal income tax returns (previous three years)
- Business tax returns (previous three years)
- Business certificate or license
- Business lease
- Loan application history
Another thing you should consider is seeking help from a professional. At The Law Offices of Kirk Halpin & Associates, P.A. we specialize in banking law. Recently, we helped a local Howard country restaurant secure a 7(a) loan, in addition to a $1 million SBA 504 loan we assisted a Baltimore company in obtaining to build their new headquarters. So, don’t let the jargon and process of applying for an SBA loan deter you from something that could enhance your business overall. Just let us guide you through the procedures, while you oversee the expansion of your company.