Small business owners have a variety of options for business loans, including conventional business loans and loans backed by The U.S. Small Business Administration (SBA), also called SBA loans. This article explores the features, benefits, and potential uses of SBA loans and provides guidance on how to get started with the application process.

7(a) Loans

Eligibility, Benefits, and Drawbacks

The SBA 7(a) loan program is the most popular loan program offered by the SBA. SBA 7(a) loans are partially guaranteed by the SBA and offered to a business (borrower) by an approved lender. Because the SBA loan is partially guaranteed by the government, banks and other approved lenders may offer longer loan terms to the borrower. However, the borrower must meet eligibility criteria for SBA loans. There are at least three requirements of an SBA 7(a) loan:

1. Your business must be for-profit
2. Your business must operate in the U.S.
3. You must have exhausted other conventional loan options

Benefits of getting an SBA 7(a) loan vs. a conventional business loan include:

• Down payments that may be lower than what is required for conventional business loans
• Business counseling and education is available from the SBA with some SBA 7(a) loan options
• Some SBA 7(a) loans do not require collateral
• Borrowers who do not qualify for a conventional business loan because of their credit score may qualify for an SBA 7(a) loan; SBA 7(a) loans require fair credit, while many business loans require good or excellent credit
• SBA 7(a) loans may be more available to startups and younger businesses than conventional business loans

Potential drawbacks of an SBA 7(a) loan may include:

• A longer application process than a conventional business loan
• SBA 7(a) loans are capped at $5.5 million, whereas conventional loans may be available for greater amounts
• Slightly more paperwork than conventional business loans

Potential Uses

The SBA 7(a) loan can be used for different purposes, such as long- and short-term working capital, revolving funds based on the value of existing inventory and receivables, and the purchase of equipment, machinery, furniture, fixtures, supplies, or materials. It can also be used for purchasing real estate, constructing or renovating a building, establishing or expanding a business, and refinancing existing business debt under certain conditions. The maximum loan amount is $5 million.

Application Process

The application process starts by working with a lender to determine the necessary documents for the loan application. The required documents may include the SBA Form 1919, personal and business financial statements, ownership and affiliations information, business license, loan application history, income tax returns, resumes, business overview and history, and business lease. If you're buying an existing business, you may need to provide additional information like current balance sheet and profit and loss statement of the business being acquired, federal income tax returns, proposed bill of sale/purchase agreement, and the asking price with schedule of inventory, machinery and equipment, furniture, and fixtures. The SBA website has a lender match questionnaire to help you connect with eligible lenders.

Why choose CSB for your SBA 7(a) Loan?

As a preferred SBA lender, Cambridge Savings Bank can handle more of the application process and underwrite loans locally, potentially offering faster decisions compared to non-preferred lenders. Cambridge Savings Bank also offers business counseling to small business loan customers, including conventional loan customers and SBA loan customers. Please reach out to a Cambridge Savings Bank business banker to learn more.

Other types of SBA Loans

504 Loans

A 504 loan can be used for assets promoting business growth and job creation, including the purchase or construction of existing buildings or land, new facilities, and long-term machinery and equipment. It can also be used for the improvement or modernization of land, streets, utilities, parking lots, landscaping, and existing facilities. However, it cannot be used for working capital or inventory; consolidating, repaying, or refinancing debt; or speculation or investment in rental real estate. 10-, 20-, and 25-year maturity terms are available. Please reach out to a Cambridge Savings Bank business banker for more information on the 504 program.

Microloans

The Microloan Program offers loans up to $50,000, with the average loan around $13,000, to aid small businesses and certain not-for-profit childcare centers to start up and expand. SBA provides funds to specially designated intermediary lenders, which are community-based nonprofit organizations experienced in lending and management and technical assistance. These intermediaries administer the Microloan Program for eligible borrowers. Microloans can be utilized for a variety of purposes that help small businesses expand, particularly when less than $50,000 is required. These purposes may include working capital, inventory, supplies, furniture, fixtures, machinery, and equipment. However, the proceeds from an SBA microloan cannot be used to pay existing debts or to purchase real estate. To apply for a microloan, you should work with an SBA-approved intermediary in your area. These SBA-approved lenders make all credit decisions and establish all terms for your microloan. Check the SBA website for a list of approved microlenders.

Take the Next Steps

After reading this article, you should feel confident that you understand the basics of the SBA loan program and how to apply for a loan. If you still have questions, our business bankers can help you better understand the loan application process for SBA loans, conventional bank loans, and other financing options. We can walk you through the eligibility criteria for the SBA loan program, help you with the application process, and help you make an informed decision about which financing option is most appropriate for your business.