What Is an SBA Loan?

The Small Business Administration, more commonly known simply as the SBA, is a government organization that specializes in providing support to small business owners and especially entrepreneurs through low interest business loans that often have below market rate interest rates. The agency often claims that its intentions can be reduced to “The Three C’s” with those C’s being: capital, contracts, and counseling.

What an SBA Loan Is

A Small Business Association Loan is a loan that is made with SBA approval through a local bank or credit union. The SBA works in part like an insurance agent to the loan. While the lender makes the exact terms, the SBA agrees to cover up to 90% of the loan in the event that the small business defaults on the loan or goes bankrupt. This helps to encourage local banks and credit unions to invest in local businesses when the capital is needed.

The SBA wasn’t always able to cover this much, but the organization was strengthened based on two major acts passed by Congress: The Recovery Act & the Small Business Jobs Act. One other important point to note is that the SBA comes involved when a community is under distress, normally due to natural disasters like severe flooding.

These loan guarantees are the most common SBA loans by far, although there are also micro-loan programs and disaster loan programs available on a limited basis.

How Do SBA Loans Work?

A business owner in a disaster area applies for a loan directly through the SBA. This agency has a minimum of one office in each state, and any business owner should be able to go to the nearest one in order to get served. If approved, the SBA and the applicant work with a local state bank or credit union who works as the actual lender.

The payments will need to be made to the lender, and it is the responsibility of the business that receives the loan to make payments on time in accordance with whatever terms are agreed upon.

Who qualifies for SBA Loans?

Small businesses and entrepreneurs in areas that have been afflicted by a natural disaster of some sort. The burden is on the business owner to prove that he or she can help spur on economic recovery in the area through funding of their business. Beyond that there are many different factors that can help determine who is or isn’t eligible on a case by case basis.

Just a few of these factors include:

·         Number of employees

·         Amount of the loan

·         Past loan history and/or credit score

·         Budget for helping out local area businesses

·         Willingness of local lenders to work with you

In Conclusion

Not everyone is going to qualify for help in the form of an SBA loan, but this government program has been successful in the past in helping local businesses to get back on their feet after floods, fires, earthquakes, and tornados. They remain a viable financial resource for many local business owners who need some help getting back on their feet and helping pull the local area up with them, as well. For more information or to explore this topic more fully, go to: www.sba.gov