Business loans are essential for setting up and running any forms of business. It provides the required push that every business looks for. Business loans, after the liberalisation of the finance sector, have become available to all. The competition between financial institutions ensures that the consumer gets added benefits and features and loans at attractive rates.  

However, the process of availing of a loan may be confusing for many since it does require a lot of paperwork. This article will throw light on how to avail a small business loan for business owners. 

Before availing of a business loan or an MSME loan, the business owner must ask himself or herself the following questions: 

Is the Business loan required? 

This is a necessary question since a loan is ultimately a liability and has to be paid off within a certain period. A business owner has to look for other means of financing his business and only if that search fails should he or she go for a business loan or an MSME loan. 

How much is the need? 

Another important question that has to be answered before availing of a loan. The amount of money decides a lot of things, lest of which the monthly expenditure in the form of EMIs. One cannot go for a large amount which may become unviable to pay off while too small a one might be of no use.  

What is the loan needed for? 

The business loan is designed to help the business maintain cash flows, manage inventories, restructure debt et al. However, the final decision to use the loan constructively lies with the owner of the business. It is important that the planning for the proper usage of the loan is done before it is availed.  

What are the financial channels of the business? 

The business needs to have enough funds back up to become eligible for a business loan or an MSME loan. This acts as a deterrent against default of interest payments. Also, unstable financial channels may lead to bankruptcy and the inability to pay off the loan, which in reality is debt. 

What is the credit score of the business or the owner? 

This is a pertinent question from the perspective of a loan applicant. A satisfactory credit score is necessary for a business loan or an MSME loan. Without a credit score, no financial institution will be authenticating a loan. A credit score is a reflection of the individual’s or the business’s financial prudence.  

After all the above questions are satisfactorily answered, should the business owner set in for the next stage and that is researching the sources of a small business loan. 

In this article, we are specifically focussing on a Small Business Administration or SBA loan. These loans are designed to assist small businesses to drive their respective businesses and make them a success. SBA loans are specific loans that are meant to fulfil a range of financial requirements of small businesses. 

One of the features of the Small Business Administration loan is that the lender does not have much risk from lending it to small businesses since the prime guarantor of this scheme is the Central Government themselves. 

There are a variety of SBA loans that are available. A consumer can choose from a large list of them depending on the criteria. Some of the dependence is linked to the amount of money required for the loan and the tenure of the loan. 

Advantage of SBA (Small Business Administration)

The major advantage of SBA is that the government guarantees up to 90% of the loan. This is not just attractive to the loan applicant but also the lender. With the government becoming the approver, the loan becomes a less risky proposition.  

Disadvantage of SBA 

The major disadvantage of an SBA is the additional paperwork that is required to avail of the loan. MSME full form being Micro, Small and Medium Enterprises, are eligible for these loans. However, with extra fees and a longer wait period, it does become quite a dampener.  

Lastly, the SBA loans are designed to help small businesses maintain a wide variety of business activities. It is also an attractive form of loan since the guarantor is the Central Government themselves.  

SBA Loan FAQs

Who qualifies for an SBA loan?

To avail SBA loan you must be officially registered as a for-profit business, and you must be operating legally.

Can anyone get a SBA loan?

Not everyone can get SBA loan. There are some eligibility criteria that must be fulfilled to get small business administration loan.

Is it hard to get SBA loan?

Although it’s relatively easy to apply for an SBA loan, it’s not so easy getting approved. If you aren’t careful with your application, you can get rejected and lose out on millions in low-cost, government-backed financing.

Can I use SBA loan to pay off debt?

The SBA simply backs the loan (agrees to repay it if the borrower defaults), ultimately reducing the amount of risk the lender takes on. The loan can be used to buy real estate or land, treated like working capital, or spent on equipment costs. Small businesses can also use the SBA 7(a) loan to refinance existing debt.

Are farmers eligible for SBA loans?

Farmers are eligible for PPP loans through the Small Business Administration (SBA), if they have fewer than 500 employees.

How do I pay my SBA loan?

To make a payment, contact the SBA Customer Service Center toll-free at 1-800-659-2955 (TTY: 1-800-877-8339). There is no fee for this service.

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