If you’re considering buying a business in the US, but are concerned about how you’ll finance the purchase, then an SBA loan might be the perfect solution.
The Small Business Administration (SBA) offers different loans to applicable entrepreneurs who are looking to buy an existing business, real estate, working capital or debt refinancing. Of course, there are qualification requirements that you’ll need to pass, but this government-backed loan has helped millions of small businesses. The SBA distributed more than 14 million loans to small businesses in 2020!
In this article, we’ll discuss the various benefits SBA loans offer, including how to apply for one.
The benefits of SBA loans
Lower down payments
Using an SBA loan to buy a business means you’ll typically pay lower down payments. Usually, traditional loan down payments require 20% of the purchase price or more. The SBA 7(a) loan only requires a 10% down payment. This means entrepreneurs have more access to business ownership and can preserve capital for other operational expenses.
Favorable loan terms
The SBA 7(a) loan mitigates risk for lenders because SBA insures the loans, essentially acting as a guarantor. This means borrowers can access favorable loan terms with longer repayment periods and lower interest rates. This helps entrepreneurs manage smaller monthly payments and have greater control over their cash flow.
Accessible smaller-scale loans
Even an SBA 7(a) loan can be difficult to gain, but the SBA also offer self-funded microloans to businesses that traditional lenders often underserve. These microloans help small business owners or entrepreneurs with no credit history or lower incomes. The program also supports female and minority-owned businesses.
Flexibility to use funds
SBA loans can be used for multiple purposes – not just to buy a business. These versatile loans allow small business owners to align their loan with their business needs. Some ways you can use SBA loans include:
- Purchasing working capital
- Purchasing inventory or equipment
- Purchasing real estate
- New building construction or renovations
- Expanding an existing business
- Refinancing debt
SBA loans are a useful and accessible finance option for small business owners and entrepreneurs looking to buy or grow a business. The Small Business Administration also offers a great support system comprised of valuable resources, training, and other opportunities that guide individuals through their entrepreneurial journey.
Submitting an SBA loan application
Deciding if an SBA loan is right for you is the first step you need to take. The second is going through the application process, which can be overwhelming. In this section of the article, we’ll answer the following questions:
- How easy is it to submit an SBA loan application?
- How do you complete an SBA loan?
- Which banks offer SBA loans?
How easy is it to submit an SBA loan application?
An SBA loan application is demanding and requires multiple support documentation. It’s not easy to apply for a loan, but it is easier to qualify for one compared to conventional lending options.
It’s important to mention that this loan is unsuitable for individuals looking to access funding quickly. The entire process – from application to funding approval – can take up to 90 days.
How do you complete an SBA loan?
These are the steps you’ll need to take and the documentation you’ll need to complete an SBA loan:
Step 1: Review and prepare your documentation
Before you begin your application, start by reviewing the lending requirements of the SBA and the lender you want to approach. Then, ensure you have all your documentation ready. Remember, different SBA loans will require specific documentation. Some of the documents you’ll need include:
- Borrower information form (7 (a) loan only)
- Your personal and business financial statements
- Your business plan
- Tax returns
- Credit history
- Other relevant financial information
Step 2: Find an SBA lender
As you may know, the SBA does not directly lend money. Instead, it partners with approved lenders who administer the loan. You’ll need to find a suitable lender by using their Lender Match tool.
Once you’ve found a lender, reach out to them directly to discuss your financing needs and how their loan programs can support you. You may need different documentation depending on their requirements.
Step 3: Complete the loan application
Your chosen lender should provide you with a loan application form and guide you through the process. This step will take some time, so go through it slowly. The application form will require extensive information about yourself and your business. Always provide accurate and detailed information to ensure the application process runs smoothly.
Step 4: Submit your documentation
This step should be relatively straightforward, as you would have gathered all your supporting documentation in step one. Along with your application form, you’ll submit your financial statements, tax returns, business plan and other documents required by the lender.
Step 5: Wait for the loan approval
At this stage, the lender will review your information, conduct a credit review, and assess the viability of your business. If your loan is approved, the lender will work with you to finalize loan terms and other details. At the closing phase, you will sign legal documents and funds will be released.
Which banks offer SBA loans in 2023?
Multiple financial institutions across the US work alongside the SBA loan program. Here are some options:
SBA 7(a) lenders
- Bank of America
- Wells Fargo
- Live Oak Banking Company
- Huntington national Bank
- Newtek Small Business Finance
- Celtic Bank Corp.
SBA 504 lenders
- Bank of America
- Well Fargo
- U.S. Bank
SBA microloan lenders
The SBA works with hundreds of intermediaries across the country. You can search for microlenders in your state or territory using the SBA search tool.
Before we end this article, it’s important to remember that the availability of SBA loans and lender requirements can vary over time. We recommend that you always contact lenders directly and conduct research on the official SBA website before you make a decision.
Find your dream business
Now that you understand more about SBA loans to buy a business, it’s time to explore thousands of businesses for sale across the United States and find one that matches your entrepreneurial goals.
If you’d like more information on loans to buy a business, you can read our finance guide for different funding options, valuation advice and more.