What Are SBA Loans and How Much Is the Cost?
When a small business owner starts to consider financing options, the first option he or she should look at is SBA loans. These are consistently the lower-priced options on the market. 7(a) loans are the most common form of SBA loan, but there are always other options. Before you can decide whether an SBA loan is right for you, you need to know more about it.
What Is the SBA?
The Small Business Administration is a federal organization in charge of small-business financing. The SBA provides several services. For instance, they have advisory and mentor programs for small businesses. In addition, they have highly competitive loans that many small businesses seek out. While the organization does not directly provide funding to small businesses, they work with vendors that do.
Competition and SBA Loans
While the lender offers the money to the small business, the SBA guarantees a portion of each SBA loan. This makes it less of a risk for lenders to offer to finance to businesses that might be higher risk or may not meet the requirements for a traditional loan. The lender incurs less risk and if the business defaults on the loan, then the SBA pitches in and pays a portion of it.
An SBA loan gives borrowers the ability to seek financing from traditional lenders. In general, these businesses cannot borrow from those banks usually. In fact, a borrower may get a cheaper loan than he or she otherwise would have. This is why the loans are incredibly competitive.
What Is the Cost of an SBA Loan?
Interest rates on an SBA loan are better than most. These are prime rates with an additional percentage. The SBA sets the percentage. They base the number on the loan amount and repayment terms. The rate may be capped based on the repayment plan. While most businesses seek out the 7(a) loan, there are a lot of options that you can choose from. Keep in mind that every option comes with different price points. If you want an SBA loan, you may not know the exact costs until you begin the process or speak with a lender about your options.
SBA loans are among the most common loans that small businesses seek out. This is because most traditional lenders will offer them at good rates. With the SBA backing the lender, this is a low-risk option.