Home » What are SBA business loans?

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Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Aug 3, 2012

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The Small Business Administration, more commonly known in financing circles as the SBA, offers government-backed business loans.

Aspiring entrepreneurs should be aware of SBA business loans since these financing tools are widely available and meant to help spur the nation’s small businesses.

When are SBA Business Loans Useful?

SBA loans have several benefits that traditional business financing opportunities lack. Chief among these benefits is the fact that SBA business loans are easier to qualify for since they’re backed by the government. Because SBA financing is secured by the government, lenders are far more lenient with their requirements.

Other benefits include:

  • Interest rate caps
  • Low monthly payments
  • Up to 25-year terms
  • Ability to finance closing costs
  • No points or origination fees
  • Lack of balloon payment clauses

Acquiring an SBA Business Loan

Since the SBA isn’t a money lender itself, they partner with other established lenders to provide the public with their lending services.

In order to apply for an SBA business loan, borrowers will need to first locate an SBA-affiliated lender. Following that, they should begin preparing an application package, complete with the following items:

  • Executive summary: an explanation of the applicant, the business, the amount required, and the purpose intended for any borrowed money
  • Business profile: an complete rundown of the business, including history, type, product, sales, employees, outlook, and affiliations
  • Management experience: a description of owners’ experience and inclusion of resumes.
  • Repayment plan: a detailed explanation of how an applicant plans to repay their SBA business loan.
  • Financial statements: a collection of historical financial data for all owners, partners, officers, and stocho0lders owning 20 percent or more in the applicant’s business (aspiring entrepreneurs without a business yet needs to provide projected balance sheets and income statements)
  • Proposed business plans and projections
  • SBA Forms 4, 4-a, and 413
  • Other business-specific items

For a complete list of application requirements, visit the SBA’s how to apply page.