Most small business loans have different periods based on the time of funding and the paperwork involved. Notably, SBA loans take more time based on the two factors. So, do SBA loans have any advantages over other loans? When considering taking a loan for a small business, many would be tempted to go for small business loans that allow them to have access to quick cash in hand. However, the best option would be to take the SBA loans since they have significant benefits over other loans. The Small Business Administration Loans have heaps of advantages to small business owners to qualify for them. However, let us look at the types of SBA loans.
Types of Small Business Administration Loans
The U.S Small Business Administration makes it possible for small business owners to have SBA loans. Its mission is to enhance the development and growth of small businesses countrywide. They do this by making it possible for small business owners throughout the country to have access to capital through backed up loans. There are three standard types of SBA loans that differ in advantages, terms and conditions. These SBA loans have a design that makes it possible to accomplish specific business goals. These SBA loans include:
- SBA 7(a) Loan, which goes for as high as $5.5 million in cash and has a term of up to 7 years.
- CDC/504 loans are meant for specific machinery and real estate purchases, and their terms are up to 25 years.
- SBA microloans which go as high as $50,000 and can be repaid in 6 years.
Note: The SBA 7(a) is the most desirable and typical SBA Loan since it is flexible. So, what are the advantages of applying for SBA loans over other small business loans?
The Benefits of SBA Loans over Other Small Business Loans
The advantages of small business loans manifest in different areas. They mainly manifest themselves in key points such as what you need to get the loan, how expensive the loan is, how the owner set themselves to pay for it, and what to do with the cash. These factors mainly focus on small businesses growth, development, and success. However, not all small businesses are fit to qualify for the SBA loans. Small business owners must first build the business history and its credit to graduate to apply for the SBA loans. Advantages of SBA loans include:
They Have Low-Interest Rates.
Any small business owner taking a loan to finance the business always worries about the rate of interest the loans can build over time. That is why checking the interest rates is critical. Notably, some loans have higher interest rates that can adversely affect the business in the long run. That’s why SBA loans have a benefit over other small business loans since they have low-interest rates. The SBA interest rate carries with the creditworthiness and the qualifications of the business. Notably, the SBA loans can have as low as 6.75% on an SBA 7(a). Also, unlike other small business loans, the SBA loans can’t rise to double digits.
SBA Capital Availability
Most business owners know how hard and frustrating getting small business loans can be. Even banks avoid risking lending out money to main street businesses. This has led to a tight spot for small business owners looking for loans to finance their businesses. However, SBA loans can help out with this. SBA loans’ unique advantage over other small business loans is the access they allow business owners to have to the capital. It means that the business owner can borrow a considerable sum of money for the business throughout the loan program, such as in the case of SBA 7(a), where business owners can borrow up to $5.5 million in seven years.
Favorable Repayment Terms
A small business loan isn’t effective if it makes the business owner stressed over the repayment timeline. This is why it’s critical to make sure that the loan terms to take are fit for the business’s cash flow. The unbeatable benefit of taking SBA loans is that they have more extended repayment periods that will not strain the company. Also, they have a favorable SBA disaster loan disbursement schedule. For instance, other small business loans have a shorter payment period of a few months or at least five years of repayment. Unlike the other small business loans, SBA loans give more cushion with the repayment periods. This can help small business owners have flexibility in planning for the growth and success of their businesses.
Have the Flexibility of Use
Some small business loans come with restrictions on how the owners should spend the money. However, SBAs allow the owners to choose how they want to use the loan. A small business owner needs to have a detailed plan on using the SBA loan to avoid misusing it on unnecessary things. It is important to note that one qualification of applying for an SBA loan is to have a detailed plan of how you intend to use the business loan. However, there are no limitations on what to do with an SBA loan.
The Down Payments
Mostly, when applying for business loans, the lender can ask for a down payment. Often, these down payments come down to the purpose and kind of the loan, the owner’s financial profile and the amount the business owner wants to apply. Although SBA loans require a down payment, they have a lower amount of down payment than other loans, which is one of the significant advantages of SBA loans over other loans.
SBA loans are the most complex small businesses loans to apply for but have numerous advantages over other loans. Also, they are competitive and awarded to small businesses with worthwhile credibility, and only eligible candidates can get them. It would be wise to build the history and credibility of the small business before settling for an SBA loan application. It makes the application process more manageable and fast. Also, remember to have the necessary paperwork when applying for the SBA loans. If eligible for the SBA loan, you will enjoy the numerous benefits that come with them.