What is an SBA Loan?

Whether you're looking for a loan to get your business off the ground, or you need more capital to grow, an SBA loan can be a great option.

SBA loans are loans provided by participating banks to small businesses that may not qualify for conventional financing or may need more flexible terms than a bank can normally offer. Banks fund and service the loan with partial backing by the federal government through the U.S. Small Business Administration (SBA). That support and partnership with the SBA allows banks to make loans to riskier small businesses, such as creditworthy start-ups, higher-risk industries such as restaurants, or businesses that lack collateral to secure the loan. It also allows banks to offer competitively priced loans as enhancements to small businesses when they need more flexible loan terms, such as a longer payback period or smaller down payments. Importantly, a trusted banking partner will explain the differences between a conventional and small business loan so you know what financing option is the best for your business.

Why Choose an SBA Loan?

Each year thousands of small businesses across the country receive SBA loans to help them start and grow. Under Armour^®, Ben & Jerry’s^®, and Green Mountain Coffee^® all received SBA loans in the infancy of their businesses.¹ SBA loans may have smaller down payments and longer repayment terms than a conventional bank loan, resulting in lower monthly payments to help your cash flow.² For growing small businesses, lower down payments and long-term financing can improve predictability of cash flows and keep more money in your business to help pay for your short and long-term capital needs such as inventory and equipment purchases. Every business is different so it’s important to talk with your banking partner to understand how an SBA loan can help.

What are the SBA loan requirements?

Banks review applications for SBA and conventional loans in a similar fashion to establish the business is creditworthy and can repay the loan. For SBA loans, they must also determine if the loan is eligible and in compliance with SBA requirements. The SBA has streamlined this process and today many banks perform this function in-house through their preferred lending status with the SBA, which minimizes additional steps, paperwork, and unnecessary delays.³ A trusted banking partner will explain and review the SBA loan requirements, along with the fees the SBA requires, to make sure you are eligible and have a positive experience. The SBA works with banks to ensure, amongst other factors, that the small business is for-profit and open to the public, and that they qualify as a “small” business based on the SBA’s size standards, and that the requested loan is for an eligible purpose.⁴ Just like a conventional loan, the bank will also make sure you have the ability to repay the loan and take into consideration such factors as your personal credit score, business plan, and credit history. Every bank is a little different and some may be more willing than others to finance certain types of small businesses, so it’s important to work with your banking partner.

Choosing a Preferred SBA Lender

While most banks offer SBA loans, not all banks are a preferred lending partner. An SBA Preferred Lender is a bank that has established itself as having the expertise to underwrite and process an SBA loan in-house rather than through a government processing center. A Preferred Lender will still require completion of SBA paperwork, however the streamlined process results in faster decisions. In addition to a streamlined process, Preferred Lenders can provide you with the small business loan expertise you need, both during the application process and throughout the repayment period. You’re already expected to know a lot about your own field – let a trusted banking partner provide you with the financial and lending expertise you deserve. If you’re interested in a small business loan, a good banking partner will walk you through all of your options, the pros and cons of each, and ultimately help you make the right decision. Interested in finding out more? To learn more about SBA loans, contact your Relationship Banker or schedule an appointment with Santander today.

1. “Surprise! 7 Businesses You Know That Grew With an SBA Loan,” Strategic Funding, accessed April 3, 2018, https://www.sfscapital.com/blog/surprise-7-businesses-know-grew-sba-loan/
2. “SBA Loans,” U.S. Small Business Administration, accessed March 7 2018, https://www.sba.gov/funding-programs/loans
3. “SBA Loan Requirements: 11 Crucial Documents to Prepare,” Fundera, last modified February 1 2018, https://www.fundera.com/business-loans/guides/sba-loan-requirements
4. “How to Qualify for a Small-Business Loan in 5 Steps,” Nerdwallet, last modified September 11 2017, https://www.nerdwallet.com/blog/small-business/how-to-qualify-for-small-business-loans/

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