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In 1953, the United States Government created the Small Business Administration (SBA) to help American entrepreneurs establish their businesses. Essentially, the SBA guarantees qualified loans made by financial institutions, making it more attractive for them to lend money to businesses. Up to 90% of qualifying small business loans can be guaranteed under typical SBA loan programs. The most widely used category of loan, known as the 7(a) SBA loan, can be used for a wide variety of different business purposes.

The Office of Advocacy has been set up by the Administration to look at all the banks around the country and determine which of them are “more business friendly.” Generally speaking, the lender approaches the SBA if it does not feel that it is in a position to assume the risk of the transaction by itself. The SBA loan is subsequently made after the Administration has assessed the elements of associated risk.

It is estimated that tens of thousands of small businesses benefit from SBA loans in any given year, and that over the years this form of financing has been very beneficial in helping to swell the ranks of the self-employed, nationwide.

The SBA is not overly onerous in setting requirements for eligibility. Fundamentally, the Administration looks at the business plan to see how repayments are projected to be handled within cash flow documents and will also look at the personal credit track record of the applicant. Other major items of consideration include the applicant’s current level of commitment in terms of collateral invested in the business, whether he or she has experience in this line of business and how management control is determined. In addition, if the applicant owns more than 20% of the business, the SBA loan must be guaranteed by the applicant personally.

Typically, an SBA loan will last for up to 15 years, but this is flexible. For example, if you require the loan for working capital purposes, it can only be amortized over a period of seven years. If you are acquiring a business, on the other hand, the loan can be scheduled over a maximum of 10 years. To refinance property, look for an SBA loan that can be stretched over 20 years and with a purchase of real estate, you can even expect a period of up to 25 years.

In general, SBA loans are available to businesses with revenue of no more than $6 million per year, and who have fewer than 500 employees. The SBA is particularly sympathetic to minority groups, including those run by veterans, women, Native Americans, although across the board, certain businesses are not considered, including those involved in speculative investments and non-profits.

The Micro-Loan program is available if you have a startup enterprise in mind. This program is spread over six years and available up to $35,000. SBA loans are also available in other, simpler formats, requiring relatively little or simplified documentation (Low Doc loans), or based on the establishment of alternative financing options, such as revolving credit lines (Express loans).

In summary, SBA loans are great ways for entrepreneurs to get outside funding, to push forward their business dreams and find access to the money that might otherwise be rather difficult to acquire.