Should Your Business Get An SBA Loan?
If you are a small business, you may have heard of the Small Business Administration (SBA). And if you are a business that may be looking for a cash infusion, you may be wondering whether an SBA loan is right for you.
Who is Lending?
Contrary to popular belief, when a business gets a small business loan, it is not actually the SBA that loans the money. The SBA acts as a guarantor for loans made by other, often private institutions.
Because of that guarantee a financial institution is more likely to lend to a business that is smaller, and which would ordinarily be too big of a business risk to the SBA. The SBA will often guarantee up to 85% of loans made by a financial institution.
How Much and For How Long?
Loans can top $5 million, with pretty reasonable interest rates – often between 6-7%. Normally, loans need to be paid back in 10 years, but in some cases the repayment can extend to 25 years.
To get an SBA loan, your business has to meet certain minimum requirements. Your (the applicant’s) personal credit score has to be at 640 or higher, and your business has to have over $100,000 in annual revenue. Even meeting these parameters, there are still some discretionary requirements that need to be met before the loan is approved.
Even if it’s approved, there are issues that you as a business owner may need to be aware of.
Many loans will still require that you agree to personally guarantee the loan. That means that if the loan isn’t paid back, regardless of whether the business is sued, files for bankruptcy, or is simply unable to repay, the lender can go after you (the guarantor), individually, including your individual and personal assets, to repay the loan. Only a personal bankruptcy will avoid the applicant having to repay the loan personally, if the business can’t.
Additionally, SBA loans are not the quickest to get. The approval process can take longer than it would with other kinds of lenders. However, there are faster approvals, for smaller loan amounts.
What Can They Be Used For?
SBA money can be used for a multitude of purposes, including for things like new equipment, refinancing existing debt, or obtaining inventory. Financing to modernize your business, or expand it are also available.
There are even microloans that can be borrowed, which are loans up to $50,000. Many startup companies qualify for these loan programs,
In fact, the recent Paycheck Protection program (PPP) enacted as a result of COVID, is part of the SBA lending program. Unlike with traditional SBA loans however, the borrower can apply for complete loan forgiveness under the PPP.
Call the West Palm Beach business litigation lawyers at Pike & Lustig for help reviewing your business loan documents and business agreements.