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Is an SBA loan right for your business?


Small Business Administration (SBA) loan programs are among some of the best financing options for small businesses. With financing up to $5 million and caps on interest rates, SBA loans greatly benefit small businesses in need of capital for commercial real estate purchases, expansion, inventory, equipment and working capital. Some of the most successful businesses in the United States today received SBA loan support in their infancy. Yet, not enough small businesses understand the benefits of SBA loans to take advantage of them. There is still some confusion over what SBA loans are, the types of businesses who may benefit from these loans and how to obtain them.

Unlike a commercial loan, loans through the SBA are specialty financing tools that are ideal for new and existing small businesses looking for lower payments, lower down payment requirements, and generous term lengths or who may not qualify for a standard commercial bank loan. SBA loans offer some of the lowest interest rates available. SBA loan low down payments and longer loan terms also allow small businesses to preserve personal cash and ease cash flow for their business, making them affordable and attractive to small businesses. 

SBA loans are also great for small businesses who are in a high growth phase and who may have more debt because of their rapid expansion. And because SBA loans allow for projection-based underwriting, they are often favored by businesses undergoing growth or challenges, franchise owners and startup businesses. These business owners can obtain financing based on profitability estimates.

Types of SBA loans

While the SBA provides multiple financing options for small businesses, the most common loans are the 7(a) loan, 504 loan, and Express Line of Credit.

SBA 7(a) loan

SBA’s primary lending program, the SBA 7(a) loan program, has a maximum loan ceiling of $5 million. This loan program is best for small businesses that need long-term guaranteed financing for fixed assets like real estate and equipment. With SBA 7(a) loans, the business owner has a lot of flexibility with their capital and can use it to finance their construction, business acquisition, inventory, tenant improvement, working capital, debt refinance and partner buyout. For this reason, the SBA 7(a) is favored by franchise and small business owners.

504 loan

Another main SBA loan programs, the SBA 504 Loan, is ideal for growing businesses that are anticipating new job creation and looking to acquire fixed assets such as real estate or large equipment. With terms up to 25 years, this loan can be used to finance land purchase, construction, renovation and long-term machinery. This loan requires business assets and/or mortgage as collateral.

Express Line of Credit

For new and existing small and mid-sized businesses, this SBA loan provides loan amount up to $350,000, which is used as working capital. This loan requires accounts receivable and inventory to be used as collateral and are often used when a borrower may not qualify for a standard conventional line of credit.

Importance of working with an SBA preferred lender

Although an SBA loan is a great way for small and growing businesses to obtain financing at lower rates and better terms than other types of small business loan, SBA loan programs have a reputation of having an extensive and somewhat tedious application and underwriting process. While that may be true, the qualification requirements for SBA loans can sometimes be more lenient than traditional commercial loans, making SBA loans a good choice despite its lengthy application process.

Due to the expertise needed to prepare an SBA loan, I recommend small business owners work with an SBA-preferred lender. In fact, not working with one can slow down the loan approval process. As an SBA-preferred lender, Bremer Bank has a dedicated SBA team that works directly with the borrower to educate and assist in applying for an SBA Loan. With over 35 years of combined experience on our SBA team, you will quickly find value in working with our team on your next SBA project.

Despite SBA loan benefits, not all small businesses will find them suitable for their goals. Business owners who need capital quickly or who do not want to use their business assets as collateral may prefer to explore other options. Therefore, it is important to work with your banking partner to discover if an SBA loan makes sense for your business’ current financial profile as well as your long-term business plans. A banking partner with expertise in SBA loan programs such as Bremer will be able to provide sound advice and work shoulder to shoulder with you on the best financing options for your business goals.

About Brandi Nelson

Brandi has worked in commercial banking since 2003. She builds long-term client relationships based on prudence, responsibility and trust while helping individuals, families, foundations and other organizations establish and meet their financial goals. By understanding your objectives and risk tolerances she will integrate cash and credit strategies into your wealth plan. Before assuming her current role, Brandi served as vice president of SBA lending at Falcon National Bank, SBA business development officer at U.S. Bank and prior to specializing in SBA served as a trusted commercial lender for 10+ years. Brandi holds a Business Administration degree, as well as an MBA, from the University of Mary. She is a volunteer with United Way of Central MN and serves on several committees at All Saints Academy in St Cloud, MN. A Judith Gap, MT native, Brandi is married with 2 children, Ian and Tiegan, and enjoys fishing, sports and spending time with her family.)

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