For many entrepreneurs looking to start, buy or expand a business, an SBA loan can offer attractive terms.
As you consider an SBA loan to fund your business, ask yourself these 3 questions:
Do you qualify for an SBA loan?
- If your credit score is too low (e.g. sub-600) or if you have had recent bankruptcies, it will be difficult for you to qualify for an SBA loan.
- You will need to put a certain amount down in order to obtain an SBA loan (min 10% but up to 25-30%). Note: You may be able to use your retirement funds without paying taxes or penalties as a down payment for an SBA Loan.
- Most lenders will require collateral (e.g. equity in your home since you will need to personally guarantee the loan).
Is an SBA loan a good fit for your business plan?
- If you will need the funds quickly, an SBA business loan may not be the best option. While an ideal candidate may be able to close on an SBA loan in a month, the process typically takes at least 60 days.
- Once you take an SBA business loan, your business will need to service the debt so you should consider whether your cash flow will support a monthly loan payment
What happens if your business fails?
- In order to qualify for an SBA business loan, you will be required to personally guarantee the loan.
- If your business fails and defaults on the loan, you will be personally obligated to pay back the loan including putting your personal home and other assets at risk if you are unable to personally pay back the loan. This means that you could lose not just your business.