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THE INC. LIFE

Size Matters: The SBA and Some Misperceptions About its Loans

The federal Small Business Administration (SBA) is a rare example of government working like it should.

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BY Ami Kassar - 18 May 2018

PHOTO CREDIT: Getty Images

That's why it's so frustrating to have to correct misperceptions about which businesses are eligible for its loan programs. The most common perception is that only the smallest of businesses - true mom-and-pop operations - are eligible.

Wrong!

While the Amazons and Apples of the world won't qualify for SBA-backed loans, plenty of businesses will, most likely including yours.

And you want SBA loans if you can get them because of a variety of loan sizes, low-interest rates and lengthy repayment terms (up to 25 years in some cases) that are offered. They can be used for just about any business need you have, including office space, marketing, payroll and seasonal inventory.

Because SBA loans are considered the lending world gold standard, the requirements can be pretty stringent. You'll likely need bank statements, profit and loss statements, both personal and business tax returns, balance sheets, collateral and legal documents impacting your business.

Rather than go into detail about size requirements - both minimum and maximum - the SBA offers a size standards tool, which can be accessed here: www.sba.gov/size-standards/.

A few basic requirements:

  • You must be a for-profit business that is officially registered and operates legally.
  • You must be physically located and operate in the U.S.
  • You must have invested your own time and money into the business.
  • You must have exhausted other financing options.

More general criteria includes a credit score higher than 620 (a 680 score or above will get you better rates and terms), more than $100,000 in annual revenue and at least two years in business.

So what kinds of businesses get the most SBA loans?

According to the SBA, full-service restaurants accounted for 22,385 7(a) loans between 2006 and 2015. Those loans totaled nearly $6 billion, or roughly $264,000 each.

Limited service restaurants, with 16,577 loans reaching just under $4 billion were second, while dentist offices (10,883 loans, $4.85 billion in total) were next.

By number, the remainder of the top 10 were beauty salons, doctor offices, specialty trade contractors, general automotive repair, gas stations with convenience stores, landscaping services and local general freight trucking.

In terms of volume, hotels and motels received just under $10 billion in SBA funding, or $1.48 million per loan.

While the 7(a) program is the SBA's biggest and most-recognized programs, there are other funding options available.

The CDC/504 loan program should be considered when financing is needed for major fixed assets, such as if you're looking to buy real estate and need major pieces of equipment.

There's also a low-interest disaster loans program for businesses of all sizes, private nonprofit organizations and even homeowners and renters. When there's a declared disaster, those loans can go for repairs or replacement of real estate, personal property, machinery/equipment, inventory and business assets.

And there's even a microloan program offering short-term loans of up to $50,000 for some kinds of businesses and not-for-profit child care centers.

The point is there's something for everyone so at the very least, it's worth a look to see what your government can do for you.

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