Traditional SBA Financing

Traditional SBA financing for small businesses

The U.S. Small Business Administration is offering designated states and territories low-interest federal disaster loans for working capital to small businesses suffering substantial economic injury as a result of the Coronavirus (COVID-19). We can help you navigate the SBA disaster loan process through our network of preferred lenders.

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Traditional SBA Business Financing is one of the most common forms of small business funding. Small business owners borrow $600 billion a year, according to the Small Business Administration.

In fiscal year 2019, the SBA approved 51,907 loans totaling $23.2 billion dollars with the average amount being $446,887. The proceeds were used to establish a new business, or to assist in the operation, acquisition, or expansion of an existing business.

Many small companies use debt financing to run their business. A survey by the Federal Reserve Bank found that 70% of small employers have some form of unpaid debt. With that said, most small businesses have an outstanding loan balance of less than $100,000. 17% of small businesses have $1 to $25,000 in debt, while 21% have $25,000 to $100,000 in debt.

Of those businesses that apply for debt financing, 56% of small businesses apply for funding to expand their business, pursue a new opportunity, or acquire business assets. This runs counter to the assumption that those businesses that seek debt financing are experiencing financial distress.

Traditional business financing is not for every business. While offered with the most favorable loan terms, they require better credit and financials, more time and resources to apply for, and processing time. For that reason, the average approval rate for traditional bank financing was 40% in 2017.

All is not lost for those small businesses that don't qualify for traditional bank financing. There are working capital loans and merchant cash advances and alternative forms of funding.

Traditional term loans

Traditional bank term loans are one of the most common forms of financing for small businesses. A traditional term loan is financing provided by a bank that is paid back over a fixed period of time.

Traditional bank loan terms are generally set between 1 to 25 years, depending upon use with monthly repayment. Term loans come in the form of a secured business loan but also on an unsecured basis. Unsecured business funding requires better credit and cash flow than secured financing.

Traditional lenders that offer term loans include community banks, credit unions, SBA lenders, and small and large banks.

Documents needed for term loans

Documents needed for term loans include:

• Business tax returns
• Income statements
• Balance sheets
• Debt schedule
• Accounts receivable and accounts payable aging schedules
• Main operating bank account statements

SBA loans

SBA loans are bank-rate loans offered by traditional lending companies such as banks, credit unions, community development companies, community banks, and non-profit lenders that are administered by the U.S. Small Business Administration. The objective of the SBA loan program is to help encourage small business lenders to provide affordable financing to small businesses by assuming some of the lender's losses should a borrower default.

Documents needed for SBA financing

Documents needed for SBA financing, include:

• Business tax returns
• Financial statements
• Accounts receivable and accounts payable aging schedules
• Personal tax returns
• Debt schedule
• Personal financial statements
• Various other SBA forms

Are you ready to move forward with getting the money you need for your business?

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