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Get your small business funded: A quick guide to SBA loans

November 09, 2016

If you’ve done any research into financing a small business, you’ve probably read a thing or two about U.S. Small Business Administration (SBA) loans. The SBA works with multiple intermediary lenders to offer multiple loan programs for eligible borrowers.

While these loan programs are tremendously successful in making funding available to business owners who may not otherwise qualify, the complex relationship between the administration and intermediary SBA lenders can be difficult to understand.

In order to become a lender with the SBA, a financial organization has to pass an application process involving a screening and evaluation. Once approved, lenders have specific procedures they must follow when working with the SBA.

An important note is that SBA lenders have sought out the SBA program, meaning they want to work with small businesses. This includes specialized lenders, credit unions, and savings and loan organizations, as well as regional and large national banks.

The SBA Preferred Lenders Program
If you’re just starting a search for SBA lenders, a good place to start is the SBA's referred Lenders Program (PLP). One of the PLP’s goals is to make the application process streamlined and straightforward. Great news! In doing so, the SBA’s PLP connects you with banks with a proven track record in making SBA loans happen.

Participating lenders in the Preferred Lenders Program vary by location. Try using the SBA’s lending tool to identify lenders you can work with.

Surprisingly, the top SBA lenders are banks
Traditional banks are notorious for turning down small businesses for loans. That is, after you engage in a mound of paperwork and a lengthy wait process that challenges your every nerve. But applying for a bank loan through the SBA is a different story.

On the list of the top 100 SBA lenders for 7(a) loans, the top 10 SBA lenders made almost half of the SBA’s $16 billion in loans in 2015—a total of $7.2 billion. And many of those lenders are commercial banks.

So why does this story vary so dramatically from the revolving door and “denied” stamp scenario that we so frequently hear about when it comes to commercial bank loans? Because the SBA has created a program that works for both sides, making it more attractive for traditional banks to work with small businesses.

The top five banks that provide SBA loans are Wells Fargo Bank, Live Oak Banking Company, U.S. Bank National Association, JPMorgan Chase Bank-National Association, and the Huntington National Bank.

SBA microloan programs
If your business needs less than $50,000 in funding, an SBA microloan may be a better fit. The average microloan size is $13,000—much smaller than other SBA loan programs—with loans available for as little as $500.

This is the only program for which the SBA actually provides funds to designated intermediary lenders. Typically, this group of classified lenders are nonprofit, community-based organizations with substantial lending experience. In addition to financing, these SBA lenders often offer management and technical expertise to small business owners. This ensures that the money they loan will be used successfully.

The who’s who of SBA micro-lenders
The SBA’s top 25 micro-lenders for 2015 include the following top five microloan intermediaries: CDC Small Business Finance Corp, Valley Economic Development Corporation, OBDC Small Business Finance, LiftFund Inc., and Empire State Certified Development.

As with all SBA lenders, those that offer microloans will vary depending on where you’re located. To find a SBA micro-lender near you, check out the organization’s list of approved intermediaries.

Sometimes it’s not what you ask, but who you ask. If the low interest rates and terms of traditional bank loans appeal to you, consider applying for an SBA loan.

Get more small business tips from Fundera today.

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