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What Is an SBA Loan and How You Can Qualify

Written by Banks Editorial Team

Updated December 18, 2023​

4 min. read​

small business administration

The Small Business Administration loans provide a helping hand to company owners to ensure that their businesses can thrive and grow. They provide an outlet that understands the needs of small business owners.

As a small business owner, you always have an extended to-do list. Your finances are a balancing act that you’re always worried about as you dream of growing your company. When you need someone in your corner to help cover expenses or to take advantage of growth opportunities, the Small Business Administration (SBA) is there with loans and other support for entrepreneurs. This guide helps you understand the role the SBA plays and ways you can benefit from their help.

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What Is the Small Business Administration (SBA)?

The SBA is a federal government agency whose mission is to provide help to small business owners and America’s small businesses. They do this through counseling, small business loans, protection against larger corporations, and other things that might threaten a small business. Their goal is to improve the economy by helping individuals start and maintain small businesses and also promoting entrepreneurship.

The History of the Small Business Administration

The SBA was created as an autonomous government agent in 1953. President Eisenhower was President of the United States when the Small Business Act arrived at his desk. Although there have been some attempts by Congress to eliminate the SBA, the agency remains a functioning entity to aid small business owners, which are at the core of the nation’s economy.

How the Small Business Administration Loan Program Works

When you apply for a small business loan from a bank or other lender, the SBA guarantees your loan. They also make it possible to get longer terms, giving you more time to repay the funds. This makes it easier for banks to loan money to a small business since it’s guaranteed to get its money back if you default.

What Is an SBA Loan?

An SBA loan is a loan processed through a bank or other lender that the SBA guarantees. It makes your small business a better risk for lenders since the SBA will cover the funds if you default on repayment.

Types of SBA Loans

There are several types of SBA loan programs offered by the SBA, and the maximum amount that you can borrow is $5 million. The primary loans type is the 7(a) loan, but others include:

  • 504 Loan or a grow loan
  • CAPLines loan
  • Disaster loan
  • Express loan
  • Export loan
  • Microloan

It’s easier to secure a loan for your small business when you have the SBA backing it.

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Benefits of SBA loans

You want to know that there are benefits to securing an SBA loan before you start the process. You don’t want to waste time on a loan product that isn’t going to meet your needs.

Longer Terms

An SBA loan can come with longer terms. This means that you can pay the funds back over a longer period of time, and it lowers your monthly payments.

For example, say you borrowed $100, and the terms are to repay the loan within 10 months. The principal payment would be $10 a month. If you extend the terms to 20 months, the same payment drops to $5 each month.

Low Fees

From loan origination fees to processing costs, a loan comes with a variety of fees that you’re expected to repay over the term of the loan. With an SBA loan, the lender can’t charge an origination fee, and all other fees are required to be reasonable.

Competitive Rates

Interest rates make a difference in the amount of money that you need to pay back over the course of a loan. You want an interest rate as low as you can find it. With an SBA loan, you receive competitive rates and longer terms that help you put money back into your business and not in interest payments.

How to Apply for an SBA Loan

Before you can receive an SBA loan, you first need to apply for one. You apply for a small business loan from the SBA through the lender you’re planning to use to receive the funds. Here’s some more essential information:

Eligibility Requirements

There are a couple of eligibility requirements you must meet to qualify for an SBA loan:

  • Fewer than 500 employees
  • In the last three years, you must have less than a $7.5 million revenue yearly average
  • $15 million or less tangible net worth
  • A net income of under $5 million per year

If you meet these eligibility requirements, you can apply for an SBA loan.

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Application Documents

The application documents include:

During the process, you might be required to produce other documents.

Choosing a Lender

You can choose any bank or other type of lender that works with the SBA and offers the SBA loan type that you want to secure.

If you need help with an SBA loan, consider ROK Financial, an online lender offering different types of business loans which do not require a minimum credit score. Instead, they will look into the years you have been in business and your gross revenue to help you secure a business loan. If you want to contact a business lending expert from the ROK’s team, fill out this simple contact form, and they will reach out with no obligation.

FAQs About the Small Business Administration

As a small business owner, you want to look at all of your options to ensure that you make the best choice possible for your company. Here are the answers you need about the SBA.

How exactly does the small business administration define “small business”?

The SBA defines a small business as a small company based on the industry. However, a standard small business is based on either its number of employees or its receipts for a year. There is a table that the SBA uses to determine the size of a business based on its industry.

Does a Small Business Administration loan help small businesses?

Yes, an SBA loan is designed to help a small business. You can use an SBA loan to grow your business or infuse the company with cash when you need it. You can also use an SBA loan to start a small business.

Is the Small Business Administration a bank?

No, the Small Business Administration isn’t a bank. It’s a government agency that works to boost the economy by helping small businesses in a variety of ways. This agency guarantees an SBA loan, making it less risky for a lender to loan your small business money.

When you’re a small business owner, you need to be able to borrow money when you need it. With the SBA, you can borrow money from a lender, and the agency guarantees the loan while lowering fees, extending the terms, and helping you find competitive interest rates.

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