by Tom Pretty, Head of SBA Lending at TD Bank
Small business is the backbone of the U.S. economy, with nearly 29 million operating around the country, according to the U.S. Small Business Administration (SBA) Office of Advocacy. For these enterprises, securing funding can impact their ability to operate and grow, yet most small business owners do not fully understand all of the types of credit available to their business.
When choosing a loan, small business owners in the 2017 TD Bank SBA Lending Survey said that a low interest rate (49 percent) and low or no upfront fees (19 percent) are their top two criteria.
Many small businesses find success working with the SBA, which sets guidelines for loans made by third-party partners such as banks and community development organizations. In the 2017 TD Bank survey, nearly half of small business owners stated that they would consider applying for an SBA loan, but some confusion remains about what an SBA loan offers and how it works.
SBA loans can be a boon to a business that might not be approved for “conventional” lending because the SBA allows approvals in certain circumstances even when the down payment or business’ cash flow is too low. SBA loans also often provide longer terms, eliminating the need for refinancing every few years or creating lower monthly payments by spreading them over more years. This is possible, in part, because the SBA guarantees a portion of loans will be repaid, eliminating some of the lender’s risk.
SBA Loan Programs.
There are two main types of SBA loans:
7(a) loan: The SBA’s primary program helps small businesses obtain financing for general business purposes, including working capital; buying equipment or furniture; purchasing or renovating buildings; business acquisitions; franchise lending; and refinancing debt. Loans of up to $5 million are issued with terms of up to 10 years for working capital and 25 years for fixed assets.
CDC/504 loan: This loan provides businesses with long-term, fixed-rate financing for purchasing major assets like real estate and long-term machinery or to construct or renovate facilities. The maximum amount of a 504 Loan also is $5 million.
Other SBA products include disaster loans, Express lines of credit up to $350,000 and a microloan program up to $50,000.
How to Apply.
As with any loan, small business owners seeking an SBA loan need to supply specific documents to a lender and fill out an application. Among the required items:
- Personal financial statements
- Business profit and loss statements
- List of debts
- Business certificate/license
- Income tax returns (business and personal)
- Résumés for key team members
- Business plan
The SBA also advises business owners should be prepared to answer several questions, including:
- Why are you applying for this loan? How will it be used?
- What assets need to be purchased, and who are your suppliers?
- What other business debt do you have, and who are your creditors?
Getting to Approval.
To find experienced SBA lenders in your area, talk to other local business owners and search for one that is part of the SBA’s Preferred Lender program, like TD Bank. This program gives certain lenders delegated authority to approve loans outright based on select criteria, shortening the time period between application and approval. You can also find more information by going to www.sba.gov.
An SBA loan can be a great way for a small business to gain access to credit when a traditional loan might not be possible. These programs can help your business take advantage of its opportunities now and grow for the future.
Tom Pretty is the Head of SBA Lending at TD Bank, America’s Most Convenient Bank®. In this role, he leads a team of Small Business Administration experts who originate and manage the Bank’s SBA portfolio, including SBA Express, 7(a) and 504 loans. Prior to joining TD in November 2015, Tom worked with GE Capital for 20 years where he led successful teams and developed a track record of growth in SBA & commercial lending