What is an SBA Loan: Who qualifies and how to apply

Running a small business can feel like you’re carrying a lot on your own. But you don’t have to do it alone. The right financial partner can help turn big decisions into confident next steps.

That’s where the Small Business Administration (SBA) comes in. By partnering with local credit unions, the SBA helps open the door to financing that’s designed for real business owners with real goals. So, what is an SBA loan, and how can you get one? Let’s break it down.

What is an SBA loan?

An SBA loan is a loan issued to small business owners that’s partially guaranteed by the SBA. While the lender still provides the funds, the SBA essentially co-signs on the loan and assumes some of the risk, potentially making the terms more favorable for the business owner.

But what does it mean to have more favorable terms? Well, because the SBA is taking on some of the risk for the good of small businesses, the business owner may be able to get a lower down payment, lower monthly payments and more flexible approval criteria.

How does it differ from a traditional business loan?

Traditional financing only includes two parties: the lender and the borrower. The borrower, or in this case the business owner, is also typically subject to whatever loan terms they qualify for based on the amount they need, their borrowing history and more.

With an SBA loan, a reputable third-party, the Small Business Administration, steps in and helps both the lender and the business owner. The lender gets an extra partner who they might feel more comfortable lending to, and the business owner takes on less risk and may qualify for more favorable terms as they try to keep building out their business.

What can I use an SBA loan for?

The beauty of the SBA loan is that it’s designed to be flexible, making it easier for you to accomplish your goals. Some common uses include:

• Starting a new business: Options for startups can cover buildouts, inventory and operating expenses.
• Buying an existing business: You can finance the purchase of a business you want to take over.
• Injection of capital: It can help you with day-to-day expenses like payroll, rent and cash flow gaps.
• Purchasing new equipment: It can be the investment you need for new tools, tech or supplies.
• Buying commercial real estate: Use it to acquire or build on property.
• Expansion or remodeling: Open a new location, upgrade your current one or scale your business.

What are the requirements for an SBA loan?

SBA loans are designed to help small business owners, but it’s still necessary to meet a few requirements. To get an SBA loan, you or your business must:

• Be an operating, for-profit business
• Be located in the United States
• Be under SBA size requirements
• Meet eligibility requirements
• Demonstrate an ability to repay the loan
• Have no other financing options for the amount you need

What are the different SBA loan programs?

One benefit of SBA loans is that there are different programs designed to support business owners at varying stages and with a wide array of needs. The programs you and your business can participate in include:

• SBA 7(a) Loans: The most common and flexible option, 7(a) loans can be used for working capital, buying a business, purchasing equipment or acquiring real estate. They’re a good fit for businesses looking for an all-purpose financing solution.
• SBA 7(a) Small Loans: This is a streamlined version of the 7(a) program with a smaller loan amount. These are often a great option for newer or growing businesses that need access to capital with a streamlined application process.
• SBA Express Loans and Lines of Credit: Designed for faster access to funds compared to traditional SBA options, these loans often offer a quicker decision process and can be used for short-term needs like managing cash flow or covering immediate expenses.
• SBA 504 Loans: These are best for larger, long-term investments, such as purchasing commercial real estate or major equipment. These loans are structured to help businesses build stability and invest in long-term assets.

How do I apply for an SBA loan?

Ready to get started? You can talk to our Business Services team to go over your goals and figure out the right program for you. Then, gather financial documents like:

• Personal financial statements
• Business financial statements
• Personal tax records
• Business tax records
• Business license
• Lease agreement
• Cash flow projections
• Anything else about you or your business you think might be relevant

Once you know what program matches your goals and you have your documents, you can apply! Remember, all loans are subject to credit approval and SBA eligibility requirements. Terms and conditions can vary, and it can take a month or longer to review and approve your application. The best way to speed up the process is to provide accurate documentation and remain responsive.

Let’s bolster my business!

Your business is your baby. Your dream. Your retirement plan. Your legacy. It’s time it gets the love and care it needs to grow, and you can do it with a partner who’s right around the corner.

When you work with Desert Financial, you can also get a full scope of business banking services that help you get close to your goals. From funding, to checking, to treasury management, to investments, we’re here to help you turn aspirations into reality.