SBA loans for small businesses.

What is an SBA loan?

The U.S. Small Business Administration supports several lending programs. For 7(a) loans, the SBA provides a guarantee to participating lenders; the business applies through a lender. This is financing that must be repaid, not a grant or automatic government approval.

An SBA guarantee protects the lender against a portion of an eligible loss. It does not cancel the borrower’s repayment obligation. Skycoast is not the SBA, and this page does not represent an SBA endorsement or an assertion that Skycoast is an SBA-approved lender.

Reference: SBA: 7(a) loans and eligibility

SBA 7(a): a broad range of business uses

The 7(a) program can support eligible working capital, equipment, real estate, business ownership changes and certain debt refinancing. The SBA lists a maximum loan amount of $5 million. That is a program limit, not the amount an individual business will qualify for.

Basic eligibility includes being an eligible, for-profit operating business in the United States, meeting applicable size requirements, being creditworthy and showing a reasonable ability to repay. Other requirements apply. A participating lender determines how the rules and its review apply to your request.

Reference: SBA: 7(a) loans and eligibility

SBA 504: major fixed assets

The 504 program supports eligible fixed-asset projects, such as owner-used business property and qualifying long-life equipment. Certified Development Companies work with senior lenders on project financing. It is important to distinguish the SBA-supported portion from the total project cost.

504 financing is not a general-purpose source of working capital or inventory funding. Eligible uses, borrower contribution, occupancy requirements and refinancing rules need review with the CDC. The SBA lists 10-, 20- and 25-year maturity options; the project and financing structure determine which terms apply.

Reference: SBA: 504 loans and eligible uses

SBA microloans: smaller financing requests

The Microloan program provides loans of up to $50,000 through designated nonprofit intermediaries. Eligible uses include working capital, inventory, supplies and equipment. Program proceeds cannot be used to buy real estate or repay existing debt.

The intermediary makes the credit decision and sets the specific terms within program requirements. The SBA lists a maximum repayment term of seven years. Ask the local intermediary about current availability, requirements and any assistance associated with its program.

Reference: SBA: Microloan program

How to choose the program to discuss

These are starting points for discussion, not eligibility determinations. A lender should confirm the program, permitted use and current requirements before you rely on any structure.

• For operating expenses or a business acquisition, start by asking whether 7(a) is appropriate.
• For a substantial real-estate or equipment project, ask a CDC whether the project fits 504.
• For a smaller request, explore the intermediary-based Microloan program.
• If you need revolving access, ask specifically about eligible SBA working-capital line programs rather than assuming every SBA loan is a term loan.
• If a deadline is inflexible, compare the full review and closing process with your actual cash needs.

Interest rates, fees and total project cash

Compare a written proposal on more than the stated interest rate. Ask whether the rate is fixed or variable, how any variable rate changes, which fees are included and whether costs are paid at closing or financed. SBA program rules and lender pricing both matter; a website example is not your offer.

Build a sources-and-uses worksheet: the project price, closing expenses, cash contribution, financed amount and funds left for operations. A loan can cover the purchase price while leaving the business short of working capital. Ask which expenses are eligible and how any shortfall will be funded.

Prepare a lender-ready document package

The exact checklist depends on the program, transaction and processing method. Label the period covered by each financial statement, explain unusual one-time expenses and make sure ownership details are consistent. Keep a record of what was supplied and what remains outstanding.

• Business tax returns and current profit-and-loss and balance-sheet statements.
• Business bank statements, debt schedule, ownership details and organizational documents.
• A clear explanation of the requested amount and each planned use of funds.
• Projections with the assumptions that support revenue, expenses and repayment.
• Purchase agreements, equipment quotes, leases or real-estate information when relevant.
• Owner financial information and other forms specifically requested by the lender.

What happens during review and closing?

Expect a sequence of fact gathering, underwriting, resolution of conditions and document preparation. Approval subject to conditions is different from funds being available. For a purchase, coordinate the financing conditions with the seller’s deadlines and any required third-party work.

Ask for a written list of open items and the person responsible for each. If the lender asks for updated statements near closing, reconcile them to earlier figures instead of sending unexplained changes. Do not commit to a spending date on the assumption that every SBA request follows the same timetable.

Questions to ask before signing

Bring the actual proposal to your accountant or another qualified adviser when you need help evaluating its effect on the business. Skycoast can be a starting point for the conversation; product availability and the provider’s role must be confirmed.

• Which SBA program is involved, and who is making and servicing the loan?
• What are the full payment schedule and estimated total borrowing costs?
• What collateral, owner guarantees or equity contribution are required?
• Which prepayment terms, reporting duties and other covenants apply?
• What conditions must be met before disbursement?
• Can the proposed use of funds and any existing debt be included?