Working Capital

Are Government Business Loans Right for Your Company?

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Despite the name recognition, Small Business Administration (SBA) loans continue to remain an elusive means of business funding to the vast majority of people. FundThrough breaks down exactly what SBA loans entail and helps you figure out whether they’re the right option for your business.

Entrepreneurs and small business owners are probably already familiar with the Small Business Administration (SBA). The SBA is an agency of the United States government that is dedicated to the foundation, building, and growth of small businesses.

Many startups, as well as small and medium-sized businesses (SMBs), have heard all about SBA loans. You might have seen them in the news when SBA loans were put on hold during the government shutdown.

Despite the name recognition however, you may be surprised by how little people really know about the SBA, and what a government small business loan entails.

Supporting Small Businesses and the U.S. Economy

Did you know that small businesses employ about half of all U.S. workers? It’s true! SMBs are crucial contributors to the U.S. economy. The hard work of entrepreneurs and business owners created more than 2 million jobs in 2015. With numbers like that, it’s no wonder that the government wants to do everything it can to support SMBs. But how far is the government going in its support of small businesses, and how can you take advantage of it?

The SBA was founded in 1953 with the goal of better supporting small businesses across the country, knowing that these SMBs would evolve into a driving force of the U.S. economy. It’s one of those “what’s good for the goose is good for the gander” kind of deals.

What Is an SBA Loan?

A key way in which the SBA offers this support is through financial assistance for small businesses. You know these as “SBA loans.” What is an SBA loan? In its most simple form, an SBA loan is a loan designed for small businesses that is guaranteed in part by the U.S. government. This part is key.

The SBA loan is not actually loaned to businesses by the government itself. The loans are made by private institutions, usually a bank or credit union. The fact that it’s an “SBA loan” means that it carries a guarantee from the government that will make traditional banks more inclined to lend. The SBA guarantees up to 80 percent of the loan. With this risk removed from the equation, a bank will be more than happy to lend your business the money it needs.

How Do I Get a Government Small Business Loan?​

Because they’re backed by the U.S. government, you can count on competitive rates when it comes to an SBA loan. Even better, payment is typically made over a long time. We’re talking 5-25 years. This gives companies plenty of time to get on their feet and pay back what they’ve borrowed.

The trick with all of these perks is that, like with any government benefit, there’s a ton of paperwork involved. Furthermore, qualifications for SBA loans can be tough to meet, even if you have all your paperwork in order. The SBA will help you find lenders, but once you have your lender, the rest is up to you.

If you have the time, and the temperament, an SBA loan can be terrific for getting your small business off the ground. Just remember that there’s no guarantee that you’re going to be approved. In order to qualify, you’ll need at least a few years of history in business and a decent credit score. Your business also needs to do at least six figures in annual revenue. Even then, you’ll need to keep your fingers crossed.

What If My Business Needs Money Now?​

It’s important to remember that SBA loans take time. In addition to the complicated application, these loans can take quite a while to process. Your company will likely be looking at a minimum of three weeks before they can expect to hear anything.

All this make SBA loans less than ideal for SMBs seeking a short-term business loan. Thankfully, there are other ways for small businesses to secure working capital quickly.

Invoice financing is a fast and convenient practice that is steadily gaining traction among small and medium-sized businesses. This is especially true for B2B companies whose finances primarily run through invoices.

FundThrough offers financing for small and medium-sized businesses by advancing up to 100 percent of their invoice value in as little as 24 hours. Because everything is done online, the application process is fast and easy. There are no reams of paperwork to fill out when it comes to invoice financing.

Government small business loans are a vital part of the U.S. economy. Without them, the country would never see the flourishing small business community we enjoy today.

For SMBs that are just getting started in the early stages of development, they provide an avenue to funding that would otherwise be out of reach.

Even so, for all the benefits, they’re neither fast nor easy for the average SMB. When your business needs to get working capital now, it’s important to understand all of your options and know that FundThrough is there to help SMBs find the money they need, when they need it.