Any small business cannot grow and progress without getting quick funding at specific points in its growth journey. While banks and major financial institutions are generally wary of providing funds to small businesses because of the considerable risk involved, private lenders are not an option for these businesses. They may provide financing but at incredibly high rates of interest.
SBA or Small Business Administration offer SBA loans for small businesses to help them fund their growth objectives and remain competitive. These loans are generally provided by SBA-approved lenders and are backed by guarantees for a major part of the loan amount.
Small businesses are unlikely to qualify for a conventional business loan from a leading bank. Such loans are provided solely at the bank’s risk. They are also covered by stringent lending guidelines.
What is an SBA 7(a) Loan?
An SBA loan, on the other hand, is a friendly loan. In this type of loan, the risk element is shared by the bank and the SBA, which guarantees a portion of the loan. The loan is subject to the guidelines of both parties.
There is also the SBA 7(a) loan designed specifically for small businesses. It is a risk-free way of lending to small enterprises looking to take their business to the next level. The loan component is a bit complex as the government guarantees a part of the loan but does not do the lending directly.
Small businesses can look to get approval for SBA 7 (a) loans as the lender knows that in case of default in payment, a portion of the loan is covered by SBA. The loan terms are favorable for the borrower. The lender knows his money is not going anywhere in case of a default.
Eligibility for SBA 7(a)
To be eligible for an SBA 7(a) loan, the business must be operating in the US or its territories. It must be running as a commercial venture. It must also have reasonable owner equity to invest. The loan amount can be used as working capital or for the expansion of business. Companies can also use the funding for purchasing relevant equipment and tools. Businesses are allowed up to 5 million dollars as a loan under SBA 7(a).
SBA 7(a) loan is a type of alternative funding in which the borrower can have access to substantial funds to plan the growth of their business in multiple ways. They can use the funding to expand their offices or equipment funding to grow their business faster and wider. Most small and growing businesses with ambitious expansion plans can use this kind of funding to achieve their goals without suffering the uncertainty of loan approvals from major banks and leading lenders.
Alternative business funding is an advanced funding option that has opened up new vistas for small and medium businesses. Well-established and large corporates also use it to give shape to their mega growth projects. With easy lending terms and a better chance of getting qualified, more and more businesses are not turning to alternative funding resources such as the SBA to get the funds they need to expand and grow profitably.
