7 Things business owners want to know about SBA loans

By Ira Gottlieb | Business Development Officer, Citizens

If you own a business or are considering purchasing one, chances are you’ve heard about Small Business Administration (SBA) loans. You may know that they’re government-guaranteed loans offered through participating lenders to help businesses which may not qualify for traditional financing get the credit they need.

But what more do you need to know about SBA loans?

In my role as Business Development Officer at Citizens, where I specialize in SBA financing, I’m often asked these seven common questions:

1. What can I use an SBA loan for?

A popular use for SBA loans is short- and long-term (permanent) working capital. Short-term working capital is a revolving line of credit you can use to manage day-to-day operations and can be borrowed, repaid, and reborrowed over a period of about one year. In contrast, permanent working capital allows you to borrow over a longer period of time to finance growth. For example, you could use it to pay the salary for a new employee you want to hire.

Another example of how businesses use SBA financing is business acquisition. I often meet business owners who want to purchase another business that’s ancillary to their business. You can also use an SBA loan to refinance other business debt. We call this balance sheet restructuring.

2. If my business is a nonprofit, can I use an SBA loan?

SBA loans are only for businesses that operate for profit.

3. Can an SBA loan solve my cash flow problems?

Yes, an SBA loan can help with cash flow problems. Let’s say your business has different loans due over a five-year period, and you’re having difficulty making payments. Theoretically, you could use an SBA loan to refinance that debt over an extended 10-year period, freeing up your cash flow.

4. I noticed there are fees for SBA loans; are those charged by lenders?

The SBA charges a Guaranty fee that's based on the amount of the loan. While Citizens doesn’t charge a packaging fee, some banks might. All other fees are to third parties for items such as business valuations, appraisals, and environmental reviews.

5. Is it true that it takes longer to get an SBA loan versus a traditional loan?

There are a lot of misconceptions about SBA loans. This is one of them. If a lender has earned Preferred Lender Status, they don’t have to get approval from the SBA to make the loan, thereby expediting the process.

6. Is the application process more complex for SBA loans?

Another misconception. SBA lenders collect only slightly more information than they would for a traditional loan. They apply that information to meet the SBA’s established standards.

7. What makes a good SBA lender?

A good SBA lender will have a dedicated process and group of people who work solely on SBA loans. These SBA specialists include bankers, underwriters, and closers who work exclusively on SBA financing. This helps streamline the process so you can get the money your business needs more quickly and easily.

If you’re looking to improve cash flow, purchase or grow your business, buy a commercial property, or consolidate business debt, an SBA loan can be a flexible and affordable way to get the financing you need. To make the process of getting one easier, work with an experienced SBA lender.

Ready to take the next step?

As a Preferred SBA lender, Citizens offers a streamlined application and fast decisions. We will, however, take the time to listen and understand your business to help you find the solution that works best for you.

Learn about SBA loans