Essential Tips for Securing a SBA-Backed Business Loan

Obtaining a small business loan is a favored approach for entrepreneurs seeking financial support. These loans are primarily offered by banks and lending partners with backing from the Small Business Administration (SBA), a federal agency that promotes affordable borrowing with low interest rates and flexible repayment options.

Although SBA-backed loans are widespread, they can be challenging to qualify for. Here are key insights to help you navigate the application process successfully.

Guaranteed Loan Amount

For loans up to $150,000, the SBA guarantees 85% of the amount. For higher loan requests exceeding $150,000, the guarantee covers up to 75%. The maximum guaranteed amount is capped at five million dollars. These guarantees apply to loans under the SBA’s section 7(a) and 504 programs, providing significant backing for small business financing.

Eligible Uses of Funds

The funds can be utilized for working capital, business expansion, or equipment purchases. Under section 7(a), funds are available through approved lenders for general business needs. Meanwhile, section 504 loans are targeted at land acquisition, facility expansion, or machinery upgrades, typically managed by private banks and nonprofit lenders.

What the Guarantee Covers

The SBA guarantees a portion of the loan amount, reducing lender risk. If the borrower defaults, the agency covers the guaranteed share, making lenders more willing to approve loans. This guarantee can also extend loan terms, resulting in lower monthly payments compared to traditional loans.

How to Apply

Businesses can apply directly through banks, financial institutions, or online platforms that facilitate SBA-backed loans. Basic eligibility includes:

Legally registered and operating for profit in the country,

Some equity invested in the business,

Efforts to secure funding from other sources without success.