Got questions about SBA loans? We have answers.

Not every small business owner who applies for a traditional commercial loan is approved. Maybe they’re seeking funding for a startup, or perhaps they don’t have enough capital to make a 20%-25% down payment on a real estate purchase, and it’s keeping them from being approved.

Fortunately, there’s an option that helps many small business owners like these obtain the financing they need to support their working capital needs and grow. The U.S. Small Business Administration (SBA) works with lenders to help small firms obtain loans via a government-guaranteed loan program.

Following are eight common questions and answers about SBA loans to help you determine whether an SBA loan might be an option for your small business.

1. What types of businesses qualify for SBA loans?

Most for-profit businesses are eligible to apply for an SBA loan if they meet the SBA’s definition of a “small business.” The size limits are different for various industries. Find the SBA's table of small business size standards here.

2. What are the main benefits of an SBA loan?

SBA loans typically have lower down payment requirements compared to conventional loans. They also feature longer repayment terms than traditional loans, providing for more flexible repayment schedules. Startups, business acquisitions and franchises are a few examples of business types for which SBA loans are often the preferred choice.

The SBA also provides a wide range of helpful business management resources such as the Service Corps of Retired Executives (SCORE) and a network of Small Business Development Centers (SBDCs), as well as the Office of Women’s Business Ownership.

3. How can I use proceeds from an SBA loan?

SBA loan proceeds can be used for practically any business purpose. These include:

• Purchase long-term fixed assets such as owner-occupied commercial real estate, machinery and equipment
• Refinance existing debt
• Finance the purchase of an existing business
• Obtain working capital

Keep in mind that there are several different SBA loan programs, and some programs set restrictions on how funds can be used. Your SBA lender can provide guidance on which program is best for your particular financing need.

4. How much money can I borrow with an SBA loan?

This depends on the specific SBA loan program you’re applying for. For example:

• SBA 7(a) guaranteed loan — Loan amounts up to $5 million.
• SBA 504 loan — Loan amounts of up to $5 million, or $5.5 million for small manufacturers and certain types of energy projects.
• SBA Express loan — Loan amounts up to $350,000.
• SBA Export Express loan — Loan amounts up to $500,000 for export businesses.

5. What are the qualification criteria for an SBA loan?

The specific qualification criteria varies for different types of SBA loans. In general, however, the applicant should be a for-profit U.S.-based business owned by a U.S. citizen or a person with permanent resident alien status.

Also, there should be no bankruptcies or foreclosures within the past three years, and the business owner should have a credit score of 650 or higher. It’s also important for the borrower to demonstrate industry and management experience in the particular field of endeavor they are pursuing.

6. What kind of paperwork and documentation are required for an SBA loan?

This also varies for different types of SBA loans. Business owners will need to complete SBA Form 413 (Personal Financial Statement) and a Management Resume, for starters. An SBA Form 1919, the Borrower Information Form, is also required.

Business tax returns and financial statements are also required as part of the SBA loan application package for existing businesses. This typically includes the following:

• Federal income tax returns for the business for the past three years
• YTD interim P&L and balance sheet statements
• Federal income tax returns for the business owner(s) for the past three years
• Pro-forma financial statements projecting cash flow for the next three years

7. Is collateral required to secure an SBA loan?

The SBA’s policy on loan collateral states that the SBA requires all available company assets to be pledged as collateral. Also, liens on personal assets may be required but only if company assets are insufficient to cover the loan amount. Additionally, the policy states that if adequate collateral isn’t available, this fact alone won’t result in denial of an otherwise qualified loan.

8. What is an SBA Preferred Lender?

The SBA grants special lending authority to the most active and expert banks by designating them as Preferred Lenders. Cadence Bank's Preferred Lender status means it can approve SBA loans independently, without the loans having to be reviewed and approved by the SBA. This results in a more streamlined loan decision process and faster access to capital for approved businesses.

Contact the SBA Loan Experts

Please contact us if you have more questions about SBA loans. Cadence Bank is an SBA Preferred Lender with a dedicated 20-person SBA loan department. Our SBA loan experts have an average 15 years of experience and a proven track record of providing exceptional service to small business owners. We are committed to helping you obtain the financing you need.

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.