SBA Loans 101

If you are a small business owner, you must have heard of the SBA or the Small Business Administration. It is an independent organization that was set up by the federal government in 1953 to help small businesses across the United States. It has met its mission statement without a doubt.

The SBA helps small business in four different avenues, which are, advocacy, financial assistance, procurement and management. Though it can help in all four aspects, SBA is particularly known for its financial assistance as it has often helped out many businesses that were unable to secure loans conventionally.

It is however important to understand that the SBA itself does not issue loans. It merely acts as a guaranty for a small business that is seeking the loan. However, a guaranty from the SBA is powerful enough for a business to secure a loan from a bank or other private lending institutions quite easily.

To qualify for a SBA loan guarantee, a business will first have to be rejected by traditional sources of financing such as banks and other lending institutions. When a small business owner experiences rejections at banks, he may turn to the SBA to seek a guaranty. The SBA will then analyze the business owner's application to see if he or she qualifies for a SBA loan.

To qualify for a SBA loan, a company must prove that it is a small business. The SBA uses various benchmarks to determine if a company fits the bill. For example, a construction company can be considered a small business if its annual sales do not exceed $33.5 million. For retail stores or service, the business must have revenues of less than $35.5 million. It is different for every business and one would have to go through the SBA website to see if their business qualifies.

Though the SBA provides a guaranty, it does not free the business owner of any financial obligations. If he fails to pay back the loan to a financial institution, the SBA will reimburse the financial institution although it will take the usual collection measures to collect from the business owner who has defaulted on the loan payment.

SBA loan approvals are not guaranteed and the SBA has a right to deny applications to a certain business based on their thorough application review process that will evaluate the business acumen and reputation of a business owner. That being said, the SBA is set up to help businesses and it will usually come through when a qualified application is submitted.

Thomas Ajava works with a variety of commercial finance lenders to get clients business loans via CommercialFinanceLenders.com.

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