When it comes to funding major investments like buying a home or a car, long-term financing is crucial. But what about financing for your business? If you've dealt with personal loans before, you might assume you know what documents you need and what the requirements are. However, business loans, especially SBA loans, have unique considerations and requirements that distinguish them from traditional consumer loans.
Here's what you need to know:
Purpose of the Loan
SBA loans are specifically designed to support small businesses. The use of proceeds from SBA loans can be used for a variety of purposes, including but not limited to:
- Business Acquisition
- Business Expansion
- Partner Buyouts
- Owner-Occupied Commercial Real Estate
- Franchises
- Construction Projects
SBA loans can also provide funding for working capital and furniture, fixtures, and equipment to support additional business needs. Essentially, SBA loans provide business owners with the opportunity to start, grow, or enhance their business operations.
Consumer loans are catered for personal financial needs, like buying a home or purchasing a car. This also includes personal loans used for education, medical expenses, or travel.
Eligibility Requirements
Since SBA loans and consumer loans are used for different purposes, your bank will assess your eligibility on different factors.
When applying for an SBA loan, your bank will evaluate the global picture of your business and you as a business owner. At a minimum, a small business owner needs to meet the following requirements outlined by the Small Business Administration:
- Operate a for-profit business
- Be a U.S. citizen, or have a green card giving you eligibility to be legally in the U.S. for the term of the loan
- Be engaged in, or propose to do business in, the U.S. or its territories
Once all SBA eligibility has been verified, the bank will assess your business and industry, your business background, knowledge of the market, and personal credit history. These and other factors will help the bank make a final credit decision.
Your qualification for a consumer loan, however, is solely based on your personal financial health, which includes your income, credit score, employment, history, and existing debt.
Loan Amount and Terms
SBA 7(a) and 504 loans are designed for larger business projects and therefore offer significantly larger loan amounts. SBA 7(a) loans can be as large as $5 million, while SBA 504 loans can finance real estate projects up to $10 million. Additionally, they have longer loan terms that extend between 10 to 25 years and lower down payments. At FNB Small Business Finance, we provide a range of flexible rate structures, including 3- and 5-year fixed rates and quarterly variable rates. This allows small business owners to choose the rate structure that best suits their needs.
Consumer loans have variable loan amounts and repayment terms depending on the purpose of the loan. A car loan, for example, typically has a term of 5-7 years, while a mortgage has up to a 30-year term. Your interest rate can also vary depending on the type of loan and your creditworthiness.
If you’re ready to take the next step in your business journey and want to learn more about SBA loans, contact one of our experienced Business Development Officers today!
