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Cash is essential for small businesses. To thrive, small businesses need financing to enable them to develop innovative new products and bring them to market.
Here’s an overview of small business loans from the US Small Business Administration (SBA), including how they work, who’s eligible, and the best way to apply. We’ll also cover the pros and cons of this type of loan, so you can make an informed decision about whether this is the right option for your business.
We’ll also share with you how you can unlock a line of credit up to $50,000 through Credit Key at Thomasnet.com®, giving you back the power to control your cash flow and get the parts you need for your little one. company.
What is an SBA Small Business Loan?
Founded in 1953 as an independent agency of the federal government, the SBA helps entrepreneurs and small business owners “pursue the American dream.” Business owners and entrepreneurs can take advantage of a loan like this to plan, start and grow their business, whether it’s covering start-up costs, investing in new real estate or to finance an expansion.
Small business loans are approved by participating lenders, most often banks, and partially guaranteed by the SBA. This means that if you were to default on a loan, the SBA would pay your lender a predetermined amount.
There are different types of SBA loans available, each with their own terms and conditions:
7(a) Loans ー Up to $5 million
This is the most frequently used loan program by the SBA, which supports small businesses with special needs. Loans are generally spent for the purchase of real estate, but can be used for supplies, furniture and fittings; short-term and long-term working capital; and to refinance existing corporate debt.
504 Loans ー Up to $5 million
This type of loan is intended for long-term, fixed-rate financing of major capital assets that support business expansion and job creation. This may include the purchase or construction of existing buildings or land, new facilities, and long-term machinery and equipment.
Microloans ー Up to $50,000
It is the smallest program offered by the SBA, with loans of up to $50,000 provided through SBA-funded intermediaries. This loan is available to small businesses as well as some non-profit child care centers to help them start up or expand. These loans are typically used for things like inventory, supplies, furniture, and fixtures.
Click here to read more detailed information on the different types of SBA loans available.
Who is eligible for an SBA small business loan?
Eligibility criteria depend on your personal situation and how you intend to use the funding. But in general, you must:
- Be a registered, for-profit business located and operating legally in the United States.
- Having invested some form of capital, whether time, money or assets, in the business.
- Clearly communicate the company’s need for financing.
- Be a “small business” as defined by the SBA.
- Have exhausted all other financing options.
How to Apply for an SBA Small Business Loan
After researching which SBA loan best suits your needs, you’ll need to apply for the loan directly through the lending institution, whether it’s a bank or a credit union. Once your application is received and reviewed, the lender will submit it to the SBA for a loan guarantee.
Once fully approved by the SBA, it is the lender’s responsibility to close and disburse the loan. In addition, your regular repayments, whether weekly, monthly or semi-monthly, will be paid directly to the lender.
What are the pros and cons of an SBA small business loan?
There are pros and cons to every business decision. What’s important is that you make the right choices for your business. Here are some important pros and cons to consider.
1. Competitive rates
In most cases, SBA loans have similar rates and fees to unsecured loans.
SBA fees are usually quite reasonable. You will pay an initial fee ー an amount generally determined by the size of your loan ー and an annual service fee.
3. Easy to qualify
Because SBA loans provide additional security for lenders, businesses that may not qualify for a typical loan ー perhaps due to poor credit ー can still receive funding.
4. Long refund terms
The added safety net of an SBA loan means that lenders are often willing to put longer repayment terms in place, reducing monthly repayments and reducing the financial strain on your business.
5. Several types of loans
Since SBA loans range from $500 to $5 million, it’s easy to find a loan that meets your unique business needs, for purchases big and small.
6. Ongoing Support
The SBA has several resource centers, including Small Business Development Centers and Women’s Business Centers, which can provide ongoing support for small businesses.
1. Eligibility criteria
Businesses that have had difficulty obtaining financing can get approved for an SBA loan. However, the eligibility criteria, as stated above, are strict and will exclude certain companies.
2. Slow process
Since SBA loans involve a middleman and detailed documentation is required, getting the financing you need can take a bit longer, usually between one and three months.
As mentioned, SBA fees are usually very reasonable. But you will still need to pay a deposit, usually 10-20% of the total loan amount. Alternatively, you may be asked to pledge assets as collateral.
Buy Now, Pay Later with Credit Key at Thomasnet.com®
Thomas, a Xometry company, has partnered with Credit Key to bring you 30-day interest-free lines of credit up to $50,000, allowing you to buy from thousands of the most qualified Thomasnet.com® suppliers while keeping money in the bank.
The credit key difference
Credit Key is not a financed loan, nor a financial lease. Rather, it’s a line of credit that gives small businesses the flexibility to purchase parts when they need them. You can get pre-approved for a certain amount before placing your order through the Industrial Buying Engine™ on Thomasnet.com®.
Who is eligible for the Credit Key?
Although the application process is straightforward, there are a few eligibility requirements. You have to:
- Be a U.S. citizen or permanent resident with a social security number as well as the minimum age to sign in your state.
- Be the business owner or signatory and apply under your personal name.
- Document the state registration of companies; a federal IEN is not required if the business is a sole proprietorship.
- Earn a total annual business income of at least $40,000.
- Have a FICO® score of at least 600.
- Have a debit card or designated bank account for refunds.
How to apply for a credit key on Thomasnet.com®
Unlike many small business loans that have lengthy application processes, it only takes seconds to apply for Credit Key. Also, there is little to no waiting period. Most companies receive a response immediately.
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