The who, what, where, when, why & how of SBA loans

Published on September 26, 2023 | Webster Bank

Thanks to new capital access measures, a more streamlined eligibility process is helping bridge the small business lending gap, fuel job creation, and drive economic development. Find out if an SBA loan is right for your company, learn how they work, explore their benefits, and get started on propelling your company’s growth.

WHAT | What is an SBA loan?

SBA loans are a category of small business loans backed or guaranteed by the Small Business Administration (SBA). As part of its mission to help start, build, and grow small businesses, the SBA created these loans to make it possible for more businesses to get access to capital critical to the health of their company.

The SBA offers two different types of loans, each designed to meet different business needs:

• 7(a) loans are common and offer the most flexibility. They can be used for a wide range of applications – business startup costs, partner buy-outs, mortgages, debt refinancing, inventory, equipment, working capital, leasehold improvements, and more.
• 504 loans have a narrower focus and can finance fixed assets only, including real estate, construction, building improvements, heavy machinery, and equipment.

HOW | How SBA loans work

Though partially backed by the federal government, SBA loans are issued by banks and financial institutions like a traditional business loan. Because SBA absorbs some of the risk, lenders can originate loans to applicants that might not otherwise be able to secure much needed access to capital.

WHO | Ideal companies for an SBA loan

SBA loans serve as equalizers by providing opportunities to businesses that may be challenged to meet traditional loan requirements—vital to the development and growth of minority-owned small businesses and entrepreneurs from underserved communities. These loans also benefit companies operating in industries with inherent risk, such as hospitality (restaurants, hotels, bed and breakfasts, catering businesses) and professional services (doctors, dentists, lawyers, plumbers, electricians) for business owners who lack collateral, including personal or professional assets like physical property, equipment, personal savings, etc.

Additionally, SBA Loans are suitable for women and minority-owned businesses and entrepreneurs from underrepresented communities.

WHY | The benefits of an SBA loan

Along with improved funding access, SBA loans offer businesses significant advantages:

• Longer repayment terms: SBA loans often provide extended maturity terms, resulting in lower monthly payments.
• Lower down payments: If an applicant does not have the resources necessary to meet the lenders equity injection requirements, SBA allows the lender flexibility to offer a reduced, more affordable equity injection.
• Fixed or Variable Rate Financing: SBA sets a maximum rate cap to ensure interest rates remain extremely competitive. Additionally, borrowers can choose between fixed or variable rate loans to align with their individual comfort level.

WHEN | The right time to get started

You don’t need a perfect business plan to meet with a lender. SBA lenders can provide guidance and direct you to helpful resources even if it’s still a work in progress. However, be prepared to share some key information. Have an accurate estimate of the amount you need to borrow and a clear plan for how the funds will benefit your company. Conducting a thorough assessment maximizes the impact of your loan and may improve your chances of approval.

WHERE | Finding the right banking partner

Choosing the right banking partner is more than just finding the best rate. Find a banker who understands your business and future vision and will customize a solution to meet your specific objectives.

Look for a trusted advisor who makes you feel comfortable, offers support when needed, and provides honest feedback—someone to guide you through the process. It’s a long-term relationship, so trust and reliability are crucial at every stage of your journey.

Ready to take the next step?

As a perennial leader in SBA lending¹ — including a team who understands the complex lending needs of Minority and Women Owned Business Enterprises (MWBE)², Webster can help with SBA-guaranteed loans and lines of credit in multiple forms and terms.

Connect with Webster Bank today.

¹All credit products, pricing and overdraft protection are subject to the normal credit approval process. Some applications may require further consideration and/or supplemental information. Certain terms and conditions may apply. SBA guaranteed products may also be subject to additional terms, conditions and fees. Requires a Webster business checking account which must be opened prior to loan closing and which must be used for auto-deduct of payment.

²Also referred to as Minority and Women Owned Businesses (MWOBs) and defined by the FDIC as companies which are at least 51% owned and controlled by one or more minorities or women