Understand the Types of SBA Loans to Increase Your Chance of Approval
SBA loans are not all created equal. The program offers specific loan types to encourage specific kinds of economic activity in communities across the country. If you are looking at the Small Business Administration’s programs as a source of funding, it’s important that you understand the types of loans available and the purposes to which they are best suited. That way, you will be sure to apply for the best loan type for your goals, and that will increase the chances you will be approved. There are a couple other things you can do to increase your odds of approval, too.
The two most frequently used types of loans from the SBA are equipment loans and commercial real estate loans. They share some features, but they are different in many ways too. Both are secured loans, meaning they use the purchased assets as collateral. When they come from the SBA, both also come with some prepayment restrictions. Where they differ is in their size and terms. SBA loans for equipment tend to be available for longer terms than for real estate, and both have maximum values for the loan as well as caps on the income of the applicant.
Less common but no less useful is the SBA loan for acquisition purposes. For the purposes of this loan, the established business being purchased needs to satisfy the maximum income and asset characteristics the SBA requires for applicants. Like the other loan types, loans made for the purchase of a small business have favorable interest rates because they are guaranteed by the SBA. Like the other loan types, they also require an investment from the applicant, and they have repayment restrictions. Unlike the other types, the loan does not need to attach to job growth because the SBA values keeping active businesses in the community.
Once you’ve decided what type of SBA loans you want to apply for, you can increase your chances of approval even more by looking into preferred lenders. When a lender gets preferred status from the SBA, they are able to approve their own loans without waiting for the Administration to verify its approval of the loan. This means several preferred lenders can process applications for you in parallel, something that was not possible when the SBA approved every single application itself. As a result, your increased applications increase the chances that at least one loan officer reviewing your submission will say yes. Every little bit of help matters when you are looking for a loan, so be sure to do everything you can to help your odds.