Business

9 Frequently Asked Questions About SBA Loans

Karen Appelgren, director of the Zions Bank Business Resource Center in Boise, addresses common questions about SBA loans.

Ali Hardy Jul 30, 2019

If you’re familiar with SBA-guaranteed loans, you know that they’re among the best funding options for small businesses. From low interest rates to flexible requirements — SBA loans really pack a financial punch.

For those less acquainted with these types of loans, Karen Appelgren, director of the Zions Bank Business Resource Center in Boise, shares nine of the most frequently asked questions she receives about SBA loans.

Karen Appelgren
SBA FAQ #1: What is an SBA loan

An SBA loan is a loan guaranteed by the U.S. Small Business Administration, a government agency that offers financial programs to small businesses. An SBA guarantee helps banks mitigate their risk of lending to a business, which allows more businesses to qualify for funding.

SBA FAQ #2: What activities qualify for an SBA loan?

A variety of business needs and purposes qualify for funding through an SBA loan.

“The terms of use are quite flexible, but common purposes for SBA loans are business acquisitions, expansions and startups,” Appelgren says. SBA loans can also be used to fund an owner-occupied real estate purchase, construction or improvements, as well as inventory, equipment, furniture and fixtures, tenant/leasehold improvements, debt refinance, or to provide working capital.  

SBA FAQ #3: What are the benefits of an SBA loan?

SBA loans are packed with advantages for small business owners. Some benefits include:

  • Competitive Terms: Your interest rate depends on your creditworthiness, but SBA-guaranteed loans generally have rates and fees that are comparable to non-guaranteed loans. Competitive terms may include lower down payments and interest rates and longer repayment terms.
  • Business Resources: SBA is committed to helping you start and run your business. They provide resources such as business counseling, education, training and mentoring through partner organizations like SBDC, SCORE and WBC.
SBA FAQ #4: Who offers SBA loans?

The SBA says it works with lenders to provide loans to small businesses but doesn’t lend money directly to small business owners. Instead, it sets guidelines for loans made by banks, community development organizations, and micro-lending institutions. The SBA helps reduce risk for lenders and makes it easier for entrepreneurs to access capital.

Since SBA does not make direct loans to businesses, banks and other financial institutions must be designated as preferred or approved lenders by the SBA.  

Read more about how to choose the right SBA lender.

SBA FAQ #5: How do I qualify for an SBA loan?

In general, eligibility is based on how a business earns its income, the character of its owner(s), and the business location. Typically, it must be a for-profit business that meets size standards, is able to repay, and has a sound business purpose. 

Keep in mind that whether it’s a conventional loan or an SBA loan, good credit is important.

“My clients often ask me how to best qualify for a small business loan,” Appelgren says. “Generally, a bank’s evaluation will include five areas of focus, often referred to as the five C’s of credit. These include character, capacity, capital, collateral and conditions.”

Consult with your lender for a full list of eligibility requirements and other details about your loan.

SBA FAQ #6: What information and documentation is needed for an SBA loan?

Appelgren says a typical loan package may include the following:

  • Completed loan application
  • Personal financial statement
  • Last three years personal and business tax returns
  • Business plan narrative with financial projections, including balance sheet, income statement (also known as profit and loss statement) and 12-month cash flow budget
  • Project assumptions
  • List of all existing business debt including term, balance, interest rate and monthly payment
  • Proposed use of loan proceeds
  • Owner resume

Please be aware that more documents may be requested by your lender, based on your specific situation.

SBA FAQ #7: What fees are involved with an SBA loan?

The SBA charges a guarantee fee. “Guarantee fees can be waived or reduced in certain circumstances, such as for a veteran-owned business,” says Appelgren. In addition, most banks will also charge a loan packaging fee.

SBA FAQ #8: What are the borrowing limits of an SBA loan?

Loan limits are based on the loan amount and program type. For example, the maximum amount for 7(a) loans is $5 million, SBA Express loans is $350,000 and SBA Export Express loans is $500,000.

SBA FAQ #9: How long does it take to get an SBA loan?

The amount of time it takes to process a loan depends on multiple factors, including how quickly the borrower responds to the bank’s requests for information or documents and how many outside parties (contractors, appraisers, etc.) may be involved in your project.

“Discuss details and deadlines early on when you meet with your lender, so both of you understand goals and expectations,” Appelgren says.

Now is the time to take advantage of low rates and grow your business with the top SBA lender in Utah and Idaho. Zions Bank’s team of experienced lenders can help you find the right SBA loan for your small business. Apply online anytime or visit your local Zions Bank branch.

 

Loans subject to credit approval, terms and conditions apply. See a banker for details.

Ali Hardy is a freelance writer for Zions Bank.

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