What is a Small Business Administration loan?

Our Hump-day Help section is designed to provide business owners useful information about the different types of financing available.

We’ve answered your questions about business lines of credit and merchant cash advances. Today, we are going to explore SBA loans. You can also visit OnDeck’s SBA comparison page here.

What is a Small Business Administration loan?
The U.S. Small Business Administration is a federal government agency that provides support and financing to small businesses. An SBA loan is made by a financial institution – such as a credit union or bank – and a portion of that loan is guaranteed by the SBA. Most large banks have an SBA loan department.

What is the difference between a true business loan and an SBA loan?
There are several differences between true business loans – such as those offered by OnDeck – and SBA loans. They include:

  • The SBA guarantees loans to startups. At OnDeck, businesses need to be open for at least one year.
  • An SBA loan application requires in depth financial documents and a business plan – reference the loan application checklist before you apply. OnDeck requires a 1-page application and your last month business bank statement.
  • SBA loans have a maximum of $5 million. OnDeck loans range from $5,000 – $250,000.
  • The SBA requires tangible collateral and typically about 20% down from the business owner. OnDeck loans are backed by a personal guarantee, and in some cases a lien on the assets of the business.

How long does it take to apply and how much does it cost?
The application and approval for an SBA loan requires a significant time commitment – typically 60 days –although it depends on the amount of money being issued. The interest varies by the applicant, lender, and your term length, and is subject to designated SBA maximums. To learn more, click here.

What does repayment look like?
Repayment is monthly, quarterly or even seasonal in some cases.

What are common uses?
The SBA offers loans to establish new businesses or to expand your current business, including purchasing inventory, equipment, real estate, etc.

Will it build my business credit?
Yes. SBA loans can be very helpful in building your business credit.

If you have any additional questions, please leave a comment for us below. Be sure to check back next week when we explore equipment leases.

OnDeck is a Google Ventures-backed company with an A+ Rating with the Better Business Bureau. The company offers small business loans nationwide to over 725 different industries. For more information about OnDeck small business loans, click here.