Pros and Cons of SBA Loans

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Many entrepreneurs pursue business loans to fulfill their additional financing needs. Even the most profitable businesses need cash for things such as expanding into new territory, increasing inventory or paying employees.

The Small Business Administration (SBA) offers potential entrepreneurs and existing small business owners the opportunity to get a business loan. One of the more popular resources used through the SBA is the small business administration loan.  The SBA offers guarantees to lenders on money loaned to small businesses.  This encourages lenders to take a risk on small business even if the business defaults.

Below are some pros and cons of Small Business Administration Loans:

Pros 

Very Reasonable Interest Rates – The SBA specifies maximum interest rates for their loan programs because they want small business owners to be able to afford their options.

No ballooning costs – When repaying an SBA loan, you’ll have set monthly payments. The ability to accurately estimate your costs is essential when running a small business.

Lowest Down Payments – For certain types of business loans that require a down payment, the loan down payment is typically lower when obtained through the SBA.

Cons 

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Extensive Paperwork/Prolonged Approval Time – Since securing SBA loans means working with the government, these types of loans require more paperwork and a longer approval process.

May Require Collateral – Putting liens on a property is standard for the SBA. If you have valuable assets, your lenders may ask that you use those assets as collateral.

Higher Interest Rates – SBA business loans can have higher interest rates than traditional bank loans. Because the SBA has guaranteed payment to the lender, many charge higher interest rates because they know they will get paid, even if the business defaults

May Not be Able to Take on Another Loan – Even though SBA loans open up opportunities for small businesses that might not otherwise be able to obtain a loan, they still demand good credit. If the business does not have an established credit history, the business owner’s history will be considered.

 

The Small Business Administration offers a great program for the right candidates.  If you’d like to learn more about this and other options for funding your business, call NCH at 800-508-1729.  We’ll work with you to develop a plan that is right for you.

 

Tags: Business Funding, Small Business Administration loans

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