How SBA loans are helping small businesses

As the stock market continued to grow for a long time through 2017 and into 2018, small business investment continued to thrive across the United States. This steady economy is a boon to the Small Business Administration’s loan programs, which continue to provide financial assistance to many businesses around the country.

In fiscal year 2017, the Small Business Administration reportedly approved more than 68,000 loans in the 7(a) and 504 loan programs, which comprised the majority of their lending activity. In total, these loans are worth more than $30 billion to support small businesses.

This year marks the 65th anniversary of the founding of the SBA. For entrepreneurs, this is a great time to seek financing for small businesses. Trends throughout 2018 have revealed some unique opportunities worth exploring if you’re entering the market for a small business loan to fuel your new business. In particular, the SBA lending business is seeing growth with the participation of small local banks, as well as the growing popularity of what are known as microloans.

The growing role of big banks

In the past, small business lending was primarily the domain of smaller local banks that depended on SBA loans for a large portion of their revenue. Meanwhile, large banks find it more beneficial to stick with corporate customers, and they often limit their involvement in small business lending.

But we’re starting to see that change. According to The Washington Post, SBA loans from major banks accounted for 25% of all loans approved in 2017, a record number.

Not only do the big banks see value in financing a small business sector, which is seen as a likely driver of continued economic growth, but the insurance layer for SBA loans making them a less risky loan than alternative lending products.

Start a business through small loans

While 7(a) and 504 loans represent the majority of SBA lending, an increasing number of startups and entrepreneurs are seeking financing through microloans. These loans are smaller than traditional SBA funding, with a maximum loan amount of $50,000. But they can be a great option for businesses that need less financial backing — especially when the company has a limited credit history.

Microloans typically offer higher interest rates than other small business loans, but the benefit is that there are fewer requirements to qualify for this form of financing. Businesses can use this money to buy equipment, buy furniture and other office supplies, or simply provide a financial shield to help a new business absorb development costs. unplanned birth.

Microloans can be purchased through a combination of credit approvals, personal guarantees from co-signers, or collateral to cover the loan amount in the event of default. It is becoming a sought-after form of business funding for startups and other businesses with limited costs or for companies looking to launch their companies to success.

Equity requirements are relaxed

In 2018, the SBA loan program changed some of its requirements to make it easier to get funding. Previously, financing buyback loans under $500,000 required 20% of the seller’s/buyer’s equity in the event of default and at least 25% for high-value transactions. over $500,000.

But this year, according to Inc., the SBA reduced those ratios to 10% broadly, with a minimum of 5% equity in cash. This will strongly support entrepreneurs in their efforts to build and develop businesses compared to the previous policy of the program.

Compare alternative lenders

While recent trends have made SBA loans more accessible to businesses, a long-term challenge is the time it takes to get approved: Businesses can wait several months before an account is available. their support to their bank account. The application process itself also needs to be considered, as in many cases business owners will need to complete lengthy paperwork and submit a dense collection of documents to be considered for a loan. both can take hours, days or even longer. to assemble.

In the event that your business needs faster access to capital, you should probably work with alternative lenders that offer faster loan approval. The proliferation of fintech companies offering a variety of small business funding options has made it easier than ever. For example, Fundbox, offers a quick online application process without any paperwork to begin. If approved, you can access business capital in less time than it takes to complete a traditional loan application. If you are looking for funds for a time sensitive situation or business opportunity, this is an option you should consider.