SBA (Small Business Administration) loans can be a really useful way of getting funds for your startup – but what are they?
- The SBA is a government entity.
- The purpose of the SBA is to help small businesses grow.
- The government doesn’t directly lend you money. Instead they provide collateral for the bank loan.
- If you wanted a $300,000 loan from a bank, they might ask for the same amount in collateral. If you only had a portion of that amount in home equity, then the SBA would provide the remaining collateral so you can get the loan.
- The difficult part of getting these kinds of loans is you need to be approved by both the bank and the SBA.
- Typically, banks will reject any SBA loan below $300,000 because anything lower is generally not worth their time and energy. SBA loans can go as high as $10 million for big real estate deals, but the average cap for most entrepreneurs is $5 million.
So if you want an SBA loan, just keep in mind that the loan comes from the bank, is guaranteed by the government, and typically falls between $300,000 and $5 million.
Tim McCormack, President of The Finance Store, explains the characteristics of loans available through the U.S. Small Business Administration.