Even though government support programs such as the Paycheck Protection Program, Shuttered Venue Operators Grant (SVOG), COVID-19 Economic Injury Damage Disaster Loan (EIDL), and COVID-19 End in 2021 but small businesses still seek economic relief amid rising borrowing costs. Small business owners are more likely to prefer local funding than national banks. Many small business owners have borrowed money from family and friends or used their own savings.
In June 2022, the US annual inflation rate reached a high of 40 years. It was 9.1%. Reopening a small business in an inflationary climate has been a challenge for many due to increased costs and decreased sales.
According to met life and the US Chamber of Commerce Small Business Index business owners are more concerned than ever about inflation. According to small businesses, their top challenges in 2022 include rising costs, declining revenue, rising interest rate, supply chain disruptions and labor shortages.
Small business loans can be a great option for entrepreneurs or business owners who are planning to start a new business. They offer flexible repayment terms and funds that will suit your needs.
What is a small business loan?
Credit unions, banks and Community-Based Financial Organizations are the ones that sanction small business loans. A portion of these loans is guaranteed by the US Small Business Administration (USSBA), an agency within federal government.
SBA Loan Programs
SBA offers different loan programs to meet the needs of different businesses. Standard 7 (a) is the most common SBA type, which provides funding for business growth and emergency needs.
This is a complete list of SBA Loan Programs.
- Standard 7(a).
- 7(a), Small Loan
- SBA Express
- Export Express
- Export Working Capital
- International Trade
- Preferred Lenders
- Veterans Advantage
- CAPLines
How do I get an SBA small business loan?
It is important to include a Business Plan with your SBA Loan Application, whether you are purchasing a new business, expanding an existing one, or starting a new business. It should explain how you plan to use the loaned funds. You can ask the local Small Business Development Centers for help in creating a plan.
How to choose a lender for an SBA Loan
Preferred Lenders and General Lenders are the two main types of SBA lenders. Preferred lenders have the power to approve the loan themselves. General Lenders may send loan applications to SBA, causing a delay in funding. Local banks and credit unions are also preferred by small business owners for funding. SBA loans are available in every region and for each industry.
The top 10 SBA lender are Live Oak Banking Company, Newtek Small Business Finance, Inc., The Huntington National Bank, Celtic Bank Corporation, Byline Bank, Wells Fargo Bank, National Association, Readycap Lending, LLC, Cadence Bank, Enterprise Bank & Trust, Enterprise Bank & Trust, Enterprise Bank & Trust, Enterprise Bank & Trust, Enterprise Bank & Trust, Enterprise Bank & trust (MO).
SBA Loans Types
- Term loan:You may take out a term-loan to purchase machinery or business equipment.
- Line Credit:You may avail of a credit line and pay only interest on the amount you borrow from your credit limit. SBA may also verify the money trail, which is known as Working Capital Loans.
- Invoice Finance:You may be able to fill in the gaps of your cash flow by using your outstanding bills as collateral.
- Commercial mortgage:Â You can also buy a commercial property using an SBA loan.
Credit Ratings for SBA Loans
SBA loans go to businesses, not individuals. To evaluate the creditworthiness of your application, lenders use your FICO Small Business Scoring Service (SBSS) Score. SBSS scores of as low as:
- Small Loans: 155%
- Community Advantage:
- Express Bridge Loan Program: 130
The Pros of Small Business Loans During Inflation
In order to counter the inflationary impact, it is expected that interest rates will rise. In these conditions, borrowing money at low interest rates can be beneficial. SBA loans can be used to make emergency payments. A small business loan is a good option for inflation.
Low-Interest Rate
Some SBA loans offer fixed rates, but most are linked to the Prime Rate. SBA loan programs have transparent interest rates, which are typically lower than industry average.
Increase your business equity
The inflation can provide business owners with a great opportunity to increase the equity of their company. The decreased purchasing power can be used to purchase stakes at discounted rates from shareholders and partners. SBA loans can be used to purchase a new company.
Collateral Requirements
Your business assets’ value may rise due to inflation. Your current book value can be pledged as collateral to secure an SBA loan. SBA micro loans of up to $25,000 don’t require collateral. All assets financed by banks will be hypothecated back to the lender.
Pay Less Down Payment
SBA loans are available with low down payments if you have a good credit score and a strong cash flow. When purchasing new assets for your business, SBA loans 7(a), 504 and 505 require a 10% minimum downpayment. If you have bad or stressed credit, you may be required to make a down payment of 30%.
Easier qualification
Commercial lending agencies usually require a high level of cash flow and extensive experience in business before they will lend to a business. To build your credit score, you can get started quickly with an SBA Microloan of up to $50,000. After you receive an SBA loan it becomes easier to increase your credit line.
Emergency Line of Credit
A SBA line-of-credit can help cushion the impact of economic cycles. It can be used to pay for wages, during periods of low sales or peak inventory, as well as one-time payments. SBA offers low-interest Disaster Assistance Loans and FEMA Grant Assistance to distressed businesses.
Nationwide availability
Find a registered SBA lender in your area. All lending partners follow a standard underwriting process.
Cons of a small business loan during inflation
SBA loans can be difficult to obtain for new business owners who have no credit history. SBA loans have some drawbacks.
Personal Guarantees
SBA loans may require applicants to provide all collateral available. Lenders may offer up to 80% off the fair market value for new equipment, and 50% off used equipment. Lenders can also encumber the assets of business guaranteeors who hold more than 20% in the company. Some SBA lenders will ask for personal guarantee, which could transfer your liability to personal assets in the event of default.
Extensive documentation
It can be a long and stressful process to apply for a SBA loan. You may be required to provide proof of your business’ viability, as well as financial statements, income forecasts, business tax returns and personal information.
Long Processing Times
The processing time for an SBA loan can vary depending on your business plan, lender, loan amount and lender. Once you have been funded through the SBA program it can be quicker to get a second loan. Start with a SBA microloan, and increase your credit limit every year.
Alternatives to SBA loans
It is not easy to obtain an SBA loan. alternative lenders are often used by business owners to finance their business. Alternative lenders provide faster application processes with less paperwork. Your loan request may be approved within 24 hours.
