If you are figuring out how you can fuel your startup with the right capital infusion, consider this unexpected resource: the federal government. With a Small Business Administration loan, startups can get up and running faster than they may have imagined. How

Does an SBA Loan Work?

To be fair, the U.S. Small Business Administration doesn’t actually originate loans. It works with traditional lenders, like banks and credit unions, to help qualified businesses acquire working capital. The SBA protects lenders with whom it works by guaranteeing those small business loans, typically up to 85 percent of the borrowed amount. Through this partnership, banks are more willing to lend capital because it knows the government will pay out 85 percent of the principal if the borrower defaults.

In turn, the SBA works with borrowers by providing financial literacy classes, business counseling and management mentoring, and more. The SBA also develops and publishes educational material to help small business get off the ground, grow and succeed.

What Loan Types are Available?

The SBA works with lenders to offer a number of different loans to small businesses and startups. Each type is meant to serve a specific purpose. For example, microloans equip startups and small businesses with up to $50,000 in capital to get their business rolling. Other loans, like the 7(a) and 504, provide up to $5 million in working capital so businesses can purchase equipment, invest in assets or expand the business. There is even a disaster loan option if a small business is struck by fire, flood or something worse.

Before applying for a loan, work with your lender to determine which is best for you. Entrepreneurs can use microloans and, in most cases, a 7(a) loans to start a business. Other loans are specific to businesses already in operation.

What are the Benefits of an SBA Loan?

Often the ability to qualify for an SBA loan is the biggest benefit to a startup. Because the SBA backs the loan, lenders are more likely to take on the risk a new business brings with it. It is also a viable option for entrepreneurs who cannot yet land a traditional loan.

Borrowers also often gain access to educational resources offered by the SBA when they take on an SBA loan. Access to experts can help a small business overcome hurdles and bust through bottlenecks, helping guide them to success.

It is always best to do research and ask questions before taking on any monetary risk. Nevertheless, startups can feel confident that the SBA and SBA lenders are there to help them succeed.

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