Understanding SBA Loans

People come to our business all the time asking for an SBA loan. SBA loans are great. They have a really low interest rate. But the problem is, a lot of people don’t understand what an SBA loan is. And that gets in the way of them actually qualifying for one. So I’m going to explain a little bit about, what is an SBA loan?

The letters SBA stand for small business administration. This is a government entity. The purpose of the entity is to help small businesses finance themselves and grow. So that’s great. The government’s on your side.

But they have a very specific way of doing it. The government doesn’t actually lend you money. A lot of people think that they do. What the government does is it provides collateral so that it helps you to get a loan from a bank.

If you were to just walk into a bank and say, I want to $300,000 loan, literally the banks may ask for $300,000 in collateral. We’ll give you a $300,000 loan, but you need to put your house on here as collateral in case you default.

What the SBA does is it provides some collateral. So maybe you don’t have $300,000 in equity in your home, but you have $150,000. The SBA provides the remainder.

So the hard part about an SBA is that you’ve got to get approved by the bank and the SBA. Along with that, there’s band industries and all sorts of other stuff. You may be thinking, how much does an SBA loan go for?
I have people that come and ask for $150,000 SBA loan. While it is true that if you look at SBA guidelines, the loans do go as low as $100,000. In practice, banks will reject any SBA loan that’s below 300,000 bucks. Because $100,000 SBA loan and a $300,000 SBA loan are the same amount of work, and they don’t get paid enough. So they just don’t care.

So in practice, if the loan is under $300,000, you’re not going to get it. And then they go up to $5 million for one type, as much as $10 million for big real estate deals. But most people are looking at the $300,000 to a $5 million. That’s the typical SBA loan. So if you want to get an SBA loan, remember the loan comes from the bank, it’s guaranteed by the government, and it needs to be between $300,000 and 5 million.”