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3 most common Small Business Administration loans—and which type might be good for your business
At more than 32.5 million strong, small businesses account for 99.9% of all American businesses. To help support these small but mighty drivers of the American economy—which collectively employ more than 45% of the nation’s labor force—the Small Business Administration offers a variety of business loans to help them grow and succeed.
Of course, small business owners have plenty of options for funding beyond the SBA. From personal loans and business credit cards to a line of credit at a large bank, there is no shortage of options for an infusion of cash. But when it comes to some of the most competitive loans with lower interest rates for large loan amounts, SBA loans are among the most highly sought after.
The SBA, a government agency founded to help spur small business economic activity, disburses funding by partnering with private financial institutions such as banks or credit unions. It acts as a guarantor for the loan, ranging from a portion to the total borrowing amount. This makes it possible for institutional lenders to offer borrowers favorable financing options because they carry a low risk of losing their investment if the business fails.
In other words, by backing the debt that a small business takes on, the SBA lowers the barriers that often stand in the way of being approved for a bank loan.
Today, a small business owner may apply for one of several SBA loan options, depending on their business situation and need. The majority of for-profit businesses qualify for SBA funding.
To better understand the funding…
J. Conrad Williams Jr./Newsday RM // Getty Images
Ruby compared the top three loan programs for small businesses using information from SBA, Congressional Research Service, and other industry sources.