When your business has growth opportunities that will require financing, it’s important to understand the landscape of options available to you. Choosing the right financial solution can be an important factor in the long-term success and health of your company.
Recently, the coronavirus pandemic put Small Business Administration (SBA) loan programs in the spotlight - particularly emergency funding options such as Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDL). The SBA 7(a) program, which has been a flagship offering by the SBA since 1953, also played an important role, but didn't receive the same level of attention as the new COVID relief programs. Historically, the 7(a) program has not always been well understood.
It's time that changed. The 7(a) program was created nearly seven decades ago to ensure small businesses have access to capital, and it has proven to be a durable offering that has launched and supported millions of businesses to success. But still, many businesses aren’t aware of the advantages an SBA 7(a) loan can offer.
5 Key Benefits of SBA 7(a) Loans for Small Businesses
Note: until Sept. 30, 2021, the 7(a) program is offering COVID relief enhancements that include three months of payment relief and fee waivers.
1. You can obtain a loan with low or no collateral. Most conventional commercial loans are fully secured with collateral such as real estate or equipment, which mitigates risk for the lender in the instance you are unable to repay the loan. An SBA loan offsets a lack of collateral with a guarantee from the U.S. government.
2. You can finance working capital. SBA loans offer more flexibility with how you can use the loan proceeds. You can fund unsecured permanent working capital items that include the start-up of seasonal operations, rapid growth, inventory purchases, payroll and overhead expenses.
3. You can preserve cash flow with longer terms. SBA loans offer longer terms, which allow for lower monthly payments and better business cash flow. Preserving cash is important for weathering the ebbs and flows of the business cycle and ensuring you have the resources available to make investments in your business without overextending a line of credit.
4. You can access a lot of capital. If your business is a heavy credit user, you’ll be glad to know there is a lot of capital available through guaranteed loan programs. You can access up to $5 million through the SBA 7(a) loan program. Those with ongoing credit needs and a good credit history can come back at a later date for subsequent SBA loans.
5. It’s often the lowest-cost credit. The growth of financial technology in recent years means that there is now a new arena of nonbank lenders that companies can turn to for fast capital. But – it can come at a cost. The interest rate advantage of SBA loans almost always make it a better deal for long-term financing, saving companies thousands of dollars over the long run.
Wondering if an SBA loan is a good fit for your business? Contact our knowledgeable team of banking and finance professionals to discuss your needs and determine eligibility. Learn more about how we work with small businesses.