Business financing is one of the biggest hurdles entrepreneurs face when they’re preparing to launch their startup. The reality for most small business owners is that their startup wouldn’t be possible without a loan. Fortunately, the Small Business Administration (SBA) administers loan programs to connect entrepreneurs with the funding they need.
One of the most common SBA loans distributed to small business owners is the SBA 7(a) loan. By guaranteeing a portion of the loan, the SBA incentivizes local and national banks to offer loans to aspiring business owners for lower interest rates and more favorable terms. There are many advantages to utilizing the 7(a) loan program over more traditional bank loans. Here are a few of the biggest.
More accessible loans
The SBA does not administer loans to business owners itself. Instead, it works with lenders on a local and national level and guarantees a certain percentage of each loan. This provides added security to the lender, which in turn allows them to offer loans to a broader spectrum of applicants.
Some aspiring entrepreneurs struggle to obtain a small business loan. They might not have as much established credit, lack equity investment or need more flexible terms. Where those business owners might have been out of luck with a traditional bank loan, SBA 7(a) loans give them more options. The program makes loan financing more accessible to a greater number of entrepreneurs.
Lower interest rates
The SBA sets maximum interest rates for the loans it guarantees. On average, these max interest rates are lower than what you might come across from the typical bank loan. This is especially true now, when federal interest rates are among the lowest they’ve been in years.
Obtaining a loan with a low interest rate can lower your monthly payment, reducing your overhead. It also lowers the total amount you’ll pay to borrow the funds over time. Rather than returning that money, your business will have extra cash on hand for future growth and expansion.
Freedom of use
One of the biggest benefits of SBA 7(a) loans is that they don’t come with many strings attached. Entrepreneurs can use financing from standard loans for almost any business expense, including real estate, start-up costs, inventory or working capital. This gives you the freedom to put your funding to use exactly where you need it in order to launch your business.
Multiple loan types
Under the 7(a) loan program, the SBA offers multiple different types of loans. Each loan addresses a specific need relating to small business. Most entrepreneurs will choose the standard loan, which can provide up to $5 million in financing.
There are also the 7(a) small loans, which finance up to $350,000, and express loans, which provide rapid funding. Small business owners can apply for the type of loan that best meets their needs and matches their preferred loan terms.
SBA loans offer flexible funding
If your startup requires a loan to get off the ground, there are few better choices than SBA 7(a) loans. Of course, applying for these loans takes some effort. You’ll need a well-crafted business plan, established credit and collateral.
Working with a financial partner like Tenet Financial Group ensures that your small business is prepared to apply for and secure a crucial SBA loan. Contact us today to learn more about 7(a) loans and to get started.