Asked and answered: Your basic SBA questions

A Small Business Administration loan, or SBA loan, is a loan designed specifically for the unique needs of small businesses. This type of financing is issued by a private lender, like a bank, but backed by the U.S. Small Business Administration, which is part of the federal government.

In this article, we’ll dive into the nuts and bolts of an SBA loan and answer some of our commonly asked questions. Our hope is that you’ll be ready to discuss with your business banker if an SBA loan is right for your business.

What can an SBA loan be used for?

While we’ll get into the types of SBA loans in part two of this series, we wanted to give you an idea of how an SBA loan can be used to benefit a small business. In the case of the 7(a) loan — which is the SBA’s most popular loan program — loan proceeds can be used for the following business purposes:

• Working capital
• Machinery and equipment
• Purchase of land and building, including construction and/or renovations
• Inventory, supplies, and materials
• Furniture and fixtures
• Establishing a new business or assisting in the acquisition, operation, or expansion of an existing business
• Refinancing of existing business debt
• Revolving lines of credit under the SBA Express program

What’s the difference between an SBA loan and a bank loan for a small business?

Two of the main differences between a conventional business loan and an SBA loan is that an SBA loan typically has a longer repayment term and lower down payment requirements than a conventional loan. Additionally, though you apply for an SBA loan through a conventional lender (like UBT), this type of financing is partially guaranteed by the Small Business Administration.

How do SBA loans work?

As we mentioned, you’ll apply for an SBA loan through a lending institution, like a bank or credit union. Your banker then applies to the SBA for a loan guarantee (or makes the decision on behalf of the SBA), and you, the business owner, will also personally guarantee the loan. Both the government guarantee and the personal guarantee reduce the risk for lenders, making it easier for them to extend this opportunity. Once you’re approved for an SBA loan, you’ll work with your business banker to close the loan and receive the funds. You repay the lender directly, usually on a monthly basis.

Who qualifies for an SBA loan?

While checking the following boxes doesn’t guarantee an SBA loan, businesses wishing to be considered for an SBA loan should:

• Operate for profit within the United States
• Meet the SBA’s small business size standards
• Demonstrate the ability to repay the debt

Often, businesses that apply for SBA loans don’t fall within the guidelines of conventional financing. Your business banker will provide you with a full list of eligibility requirements for your loan.

Who can best help my business with an SBA loan?

While many financial institutions can assist with SBA loans, it’s best to find one with a designated small business department, one that’s in tune with the distinctive needs of a smaller enterprise or burgeoning startup.

If your bank’s a Preferred Lender Partner (PLP) of the SBA, that’s even better. What does this mean exactly? The short answer: a simplified — and often faster — approval process. The PLP distinction, besides being the highest accreditation a lender can receive from the SBA, allows that bank to make credit decisions on behalf of the SBA, rather than acting as the go-between. UBT holds such a distinction, and, as our decision makers are local, this simplifies and speeds up the SBA loan approval process for our small business applicants.

We hope we’ve answered some of your SBA questions. To learn more about SBA loans, check out this article or visit our SBA resource page. We have experts and support at the ready!

Ready to meet with a small business loan expert? We’re here to here to help!