Small businesses require capital to grow and shine. This can come in many forms of financing, from business lines of credit to term loans. For sizeable purchases of equipment, real estate or other business essentials, SBA loans can be an excellent choice. What are they?

What an SBA Loan Is

Term loans involve lending money to a business over a set period of time, usually with a type of collateral to offset the lender’s risk. SBA loans are a special type of term loan that is backed by the U.S. Small Business Administration and offered by financial institutions.

Advantages of SBA Loans

Because the SBA assumes much of the risk for financing, this type of loan usually offers exceptional interest rates and repayment terms. This can give your small business solid footing for growth. The catch is that you have to quality according to SBA guidelines.

What You Need To Apply for an SBA Loan

Qualifying for an SBA loan requires demonstrating the size of your business, its financial stability, and your company’s credit rating. Here are a few documents you’ll need to prepare in advance and submit with the application:

  • Annual income statement
  • Annual balance sheet
  • Tax returns for one or two years
  • Outstanding accounts receivables
  • Outstanding accounts payables

You may need to provide financial records for the past one or two years of business. Many lenders expect a company to have at least two years operating successfully to qualify for term loans, but requirements vary so you shouldn’t shy away from requesting more information. Accounts receivables and payables demonstrate any outstanding debts or assets your company has.

Tips for Requesting SBA Loans

When talking with loan officers, be specific about your needs. Show how you will use the money, why your business is a good investment and why you need the specific loan amount you’re requesting. To do this, you need to understand your company’s financial statements and cash flow, including what areas of business are driving financial growth.

It’s also essential to take great care of your credit. Avoid taking out other long-term loans if you plan on requesting SBA financing in the future. Pay your credit card statements, business expenses, bills, and taxes promptly. Avoid the common mistake of mixing personal finances with business accounts, since this can cause problems with your credit.

Successfully getting an SBA loan takes work, but the results are worth the effort. If you take your time to prepare beforehand, the application process can go smoothly.