Things to know before applying for a guaranteed business loan

Things to know before applying for a guaranteed business loan

Taking a small business loan is one of the popular ways to benefit from guaranteed business loans. This type of debt is issued mostly by banks, and other lending partners are backed and vouched for by the Small Business Administration (SBA). It is a federal agency that supports lenders willing to grant these loans at low-interest rates and flexible payment terms.

While they are the most popular form of finance backed by the SBA, these loans are incredibly tough to secure. Here are some things that you should know about the process before applying for a guaranteed business loan with the administration.

Loan amount guaranteed

If the lender issues a loan amount of $150,000 or less, the SBA will guarantee 85% of that amount. If the requested amount is more than $150,000, the federal agency will guarantee up to 75% of that amount. Either way, you have an established government entity that is willing to back your loan and pay for a substantial share, with the maximum cap limit set at five million dollars. The federal guarantee is applicable for loans under sec 7(a) and 504 programs of the Small Business Administration.

Using the loan amount

The amount can be used as working capital, or for any expansion, or even purchase of equipment for the business. The qualifying amount can be taken from banks, financial institutions, and lenders who can issue debt backed by the SBA under section 7(a) of the flagship program. Additionally, if the funds are covered under section 504 of the loan program, you can use the amount for buying land, expanding facilities, and upgrading machinery. However, note that under the 504 program, the loan will be provided by private sector banks and nonprofit organizations that lend money.

What does the guarantee entitle?

The agency guarantees to back a portion of the amount lenders are willing to give the applicant. It is one of the reasons why SBA loans are tough to get in general. If the applicant defaults on a payment, the federal agency will pay for only a guaranteed amount. Also, the guarantee enables banks and financial institutions to increase the loan tenure, which is why the monthly payments are lower than traditional forms of business loans.

Applying for an SBA guaranteed business loan

You can either approach any traditional bank or financial institution that deals with guarantee loans or apply for one online. Several online platforms allow businesses to raise money. Moreover, to apply for one, the basic requirements to be met include:

  • Your business must be registered in the country legally and operates for-profit,
  • You must have equity invested in the business,
  • And you have tried to secure but could not get funds from other institutions.

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