SBA Small Business Loans: Get The Facts

The SBA small business loan is a loan offered through the government's Small Business Administration, which offers several loan programs to assist small businesses. Like with the Federal Housing Administration, the SBA does not loan you the money directly; you must apply for a loan from a separate lender, and the SBA guarantees your loan to that lender. But there are a variety of different loans the SBA guarantees, covering several different circumstances.

Business Requirements

All applicants for a basic SBA loan must fit certain criteria:

  • They must fit the SBA's definition of a "small" business, which usually means a maximum of about 500-1500 employees or about $5 million in gross profit, depending on the industry.
  • They must be a for-profit business.
  • They must do their business in the United States or its possessions.
  • The owner must invest a reasonable amount of his or her own equity.
  • They must show that they have used other financial resources as well, and that they have a reasonable degree of financial stability.
  • They cannot carry out illegal activities as part of their business.
  • They cannot conduct business in loan packaging, or gambling. The applicant's business cannot also be in investment or money lending themselves

The Owner's Record

The SBA also examines the business owner's personal history as well. Business owners must submit a "statement of personal history," testifying whether the owner has a stable credit history and has abided by the laws of his or her country. The owner also cannot be a former felon on parole.

The Types of SBA Loans

The most basic SBA loan, sometimes called the 7(a) loan after the federal bill sponsoring it, is the most flexible loan program. A Basic SBA loan can be used to cover almost any basic business need - machinery, equipment, furniture, land, construction, renovation, and sometimes even initial capital.

More specialized SBA small business loans are also available. The SBA also offers loans for real estate, landscaping or street improvements, or for specialized equipment meant to expand or modernize a business. This loan usually is sponsored by both a private lender and a certified development company, or CDC. The CDC is usually a community-based non-profit corporation designed to foster business growth in a given community. With this loan, the borrower is in turn expected to create a new job within the company for every $50,000 they receive.

Finally, the "microloan" program offers short-term loans to businesses who need smaller-than-usual loans, of $35,000 or less. These microloans are also available to non-profit childcare centers as well as small businesses, and can be used to purchase inventory, supplies, furniture, machinery or equipment; they cannot be used to purchase real estate. Usually the SBA works with a non-profit community lending organization to offer these microloans. Some of these organizations also offer business or technical training to each applicant, ensuring they are able to best use the capital.