SBA Loans For Women: What You Need To Know

Being an entrepreneur is never easy. However, if you’re a female entrepreneur, you may face even more challenges when owning and operating your own business. After all, until the passage of H.R. 5050: Women’s Business Ownership Act in 1988, women in many states couldn’t even receive a business loan without having a male cosigner. Thanks to this legislation, more resources are available for women business owners. Unfortunately, though, women still face challenges when applying for business loans and financing.

If you’re a female business owner or you’re ready to start your own business, don’t lose hope. There are resources available to fund the launch or expansion of your business. One of the best resources? The Small Business Administration.

The Small Business Administration — or SBA — provides a variety of resources, including affordable loan programs, to female entrepreneurs. Ready to learn more? Read on to find out more about the SBA, growing your business with SBA loans, and additional resources available for women-owned businesses.

What Is The SBA?

The SBA was founded in 1953 to provide assistance to small business owners. The SBA provides various resources to help small business owners become successful entrepreneurs. This includes in-person and online counseling, low-cost training, and advocacy for small businesses. One of the SBA’s most significant resources is its low-interest loan programs.

Securing a traditional loan from a bank or credit union can be tough for any business owner. These financial institutions view small businesses as a risk, even when the business has established a track record of success. Because traditional lenders tend to avoid risky borrowers, many business owners have the door shut in their face.

At this point, there are a few options to consider. Alternative lenders have fewer requirements but much higher rates and less favorable terms. Low borrowing limits through these lenders may also prove to be a problem.

Instead of simply accepting a loan with less-than-desirable terms, many business owners look to the SBA to receive loans with competitive rates and terms, even when they’ve been turned down for other loans.

Overview Of SBA Loan Programs

Loan Program Description More

7(a) Loans

Small business loans that can be used for many many business purchases, such as working capital, business expansion, and equipment, inventory, and real estate purchasing.

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Microloans

Small loans, with a maximum of $50,000, which can be used for working capital, inventory, equipment, or other business projects.

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CDC/504 Loans

Large loans used to acquire fixed assets such as real estate or equipment. 504 Loans are offered in partnership with Community Development Companies (CDCs) and banks.

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Disaster Loans

Loans used to rebuild or maintain business following a disaster. 

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How The SBA Helps Women-Owned Businesses

The SBA’s Office of Women Business Ownership was created to enable and empower female entrepreneurs. Training and counseling are available to all women through Women’s Business Centers, with over 100 educational centers open nationwide.

The Office of Women’s Business Ownership collaborates with other organizations to provide additional resources to women entrepreneurs. We’ll explore some of these resources a little later in this post.

The SBA also provides federal contracting opportunities for women through the Women-Owned Small Business Federal Contracting program. Through this program, certified women-owned businesses can compete for federal contracts.

The SBA does not discriminate when it comes to funding and resources. Women-owned businesses can take advantage of everything that the SBA has to offer. Female entrepreneurs can apply for all SBA loans provided they have a “small business” as defined by the SBA and meet all other requirements. These loans open up funding opportunities for women to launch or grow their small businesses.

One important thing to note here is that the SBA is not a lender. Instead, this organization has created guidelines that keep interest rates low and repayment terms flexible. Money is loaned through lenders known as intermediaries. An intermediary can be a bank, credit union, nonprofit organization, or another lender. The SBA takes the risk off of lenders by guaranteeing large percentages of most loans. This makes it easier for lenders to loan to small businesses, which can then take advantage of these affordable financing opportunities when other options aren’t available.

How To Qualify For An SBA Loan

One of the most valuable resources available through the SBA is access to low-cost loans. Female entrepreneurs that don’t qualify for traditional loans can receive competitive rates and terms through SBA programs.

Starting or expanding your small business takes capital … and sometimes, lots of it. Purchasing or leasing a commercial building, buying equipment, and even having working capital for daily expenses can be a financial burden that most entrepreneurs can’t handle alone. This is when an SBA loan can really be beneficial.

Women can apply for any SBA loan product, provided they meet the requirements. The first requirement is that the business must meet the SBA’s size standards for a small business. The SBA limits the number of employees, annual revenues, and net worth of the business.

To receive an SBA loan, your business must be based in the United States. Most loans are only available to for-profit businesses, although SBA Microloans are also open to nonprofit childcare centers. Businesses in certain industries are also ineligible to receive SBA loans. These industries include, but are not limited to:

  • Multi-Level Marketing Schemes
  • Real Estate Investment Firms
  • Religious Institutions
  • Lending Firms
  • Businesses In Illegal Industries
  • Government-Owned Businesses
  • Gambling Businesses

When applying for SBA loans, your personal credit score will be a factor for approval. Though credit requirements vary by lender, most SBA intermediaries require a solid credit score at least in the mid-600s. Of course, the higher your score, the higher your chances are to receive a loan. Your credit report must also be free of:

  • Recent Bankruptcies
  • Tax Liens
  • Defaults On Government Loans

Other negative items on your credit report will need to be explained to your lender, and depending on the severity, may disqualify you from receiving a loan.

You must also show sufficient revenue to cover your monthly loan payment. Your lender will evaluate your revenue and your current debts during the underwriting process to determine if you can afford the new loan.

Depending on the loan you apply for and the total borrowing amount, you may also be required to pay a down payment and/or put up collateral to secure the loan. You may also be required to pay fees to receive your loan including but not limited to:

  • Guarantee Fees
  • Origination Fees
  • Packaging Fees
  • Loan Service Fees
  • Closing Costs

To qualify for an SBA loan, you must have invested your own time and money into your business. You also must have exhausted all other financing options before applying.

Can I Get An SBA Loan If I Have Bad Credit?

To qualify for an SBA loan, a solid credit score is required. Credit score requirements are not set by the SBA, but this doesn’t mean that your score isn’t important. Your personal credit score is, in fact, an important factor considered by intermediary lenders.

Most lenders want to see a credit score of at least 620, while scores over 700 are preferred. If your credit score falls below 620 or your credit report has negative items such as bankruptcies, foreclosures, or collections, the chances of receiving an SBA loan are slim to none.

If your credit prevents you from receiving an SBA loan, there are a few options. The first is to work on your credit, build your score, and apply when you meet all requirements. Start by receiving your free credit score online, reviewing your credit report, disputing any errors, and paying your current debt obligations as agreed. Although this can be a lengthy process, building your credit score will open up many affordable financing opportunities for you, including SBA loans.

If your financing need is more urgent, you can apply for loans and other financing for bad credit borrowers. Be aware, however, that these loans have less favorable terms, higher interest rates, and are more expensive than SBA loans.

Types Of SBA Loans For Women-Owned Businesses

Now that you have a general understanding of SBA loans, which loans are best for women-owned businesses? While all SBA loans are available to female entrepreneurs, three loans stand out the most: SBA 7(a) loans, Microloans, and CDC/504 loans. Let’s delve into the details of each type of loan to help you determine which is best for your business.

SBA 7(a) Loans

The SBA 7(a) loan is one of the most popular loan options for small business owners. Through the 7(a) program, borrowers are eligible to receive up to $5 million that be used for nearly any business purpose, including the purchase or expansion of an existing business, refinancing existing debt, or to pay startup costs.

Repayment terms are based on the borrower’s ability to repay and are up to 10 years for loans used as working capital or up to 25 years for loans used for commercial real estate. Interest rates are based on the amount borrowed and the repayment terms. The maximum interest rates for a 7(a) loan is the prime rate plus a markup between 2.25% and 4.75%. Check out the current rates for SBA loans.

SBA 7(a) Loan Base Rates + Markups

Loan Amount Less Than Seven Years More Than 7 Years

Up to $25,000

Base rate + 4.25%

Base rate + 4.75%

$25,000 – $50,000

Base rate + 3.25%

Base rate + 3.75%

$50,000 or More

Base rate + 2.25%

Base rate + 2.75%

SBA 7(a) loans of $25,000 or less do not require collateral. Loans of more than $25,000 up to $350,000 may require collateral based on the lender’s policies. All loans that exceed $350,000 must be secured with collateral. Fixed assets of the business are used to collateralize the loan, although trading assets and personal real estate may be used as collateral if needed. A guarantee fee must be paid by the borrower for 7(a) loans over $150,000.

Women-owned businesses may also qualify to receive the SBA’s Community Advantage loan. Through this program, business owners can receive up to $250,000. Loan proceeds can be used for nearly any business purpose, just like with the 7(a) loan. Repayment terms are the same as the 7(a) program, and the maximum interest rate is the prime rate plus 6%.

What makes this loan different from the traditional 7(a) loan? The Community Advantage program is designed for small businesses in underserved markets. Women-owned businesses, businesses located in low-to-moderate income areas, businesses in rural areas, and businesses that are less than 2 years old qualify for funding through this program.

SBA Microloans

If you have smaller capital needs, the SBA Microloan program may be the right financing solution for your business. Women-owned businesses can apply for up to $50,000 through this program. The average loan amount distributed through this program is $13,000. These loans are distributed through nonprofit lenders.

SBA Microloan proceeds can be used as working capital, to purchase equipment or fixtures, or to cover improvements. Microloans can’t be used to repay existing debt.

Maximum repayment terms are set at 6 years. The interest rate is based on the lender’s cost of funds. The lender can add a maximum of 8.5% to its cost of funds when distributing loans. There is no guarantee fee required with these loans. Collateral and/or a personal guarantee may be required by the lender as a condition of receiving the loan.

SBA Microloan Rates & Terms

SBA 504 Loans

Borrowing Amount

$500 – $50,000

Term Lengths

Up to 6 years

Interest Rates

6.5% – 13%

Borrowing Fees

Possible fees from the loan issuer

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral normally required, but depends on the lender

Down Payment

  • No down payment for most businesses
  • Possible 20% down payment for startups
  • Possible 10% down payment for business acquisition loan

SBA CDC / 504 Loans

If you need to purchase commercial real estate or update your existing facilities, consider applying for an SBA CDC/504 loan. This program is a little bit different from other SBA programs because you work with two different lenders.

Proceeds from an SBA CDC/504 loan can be used to purchase buildings, land, or long-term equipment, to improve land or update facilities, to pay costs for new construction, or to refinance debt connected to purchasing or updating facilities or equipment.

This is how the SBA CDC/504 program works: a Certified Development Company that is licensed through the SBA provides 40% of your project costs up to $5 million. A private lender provides 50% of the project costs. You are responsible for paying the remaining 10%. If you’re a new business or purchase a special-use property, you may have to pay up to 10% more.

Your CDC loan comes with repayment terms of 10 or 20 years. Interest rates for the portion of the project funded by the CDC are based on the 5-year and 10-year U.S. Treasury issues. Interest rates and repayment terms funded by the private lender vary.

SBA 504 Loan Rates & Terms

SBA 504 Loans

Borrowing Amount

No maximum, but the SBA will only fund up to $5 million

Term Lengths

10 or 20 years

Interest Rates

Fixed rate based on US Treasury rates

Borrowing Fees

  • CDC servicing fee, CSA fee, guarantee fee, third party fees (however, most of these fees are rolled into the interest rate or cost of the loan)
  • Possible prepayment penalty

Personal Guarantee

Guarantee required from anybody who owns at least 20% of the business

Collateral

Collateral required; usually the real estate/equipment financed

Down Payment

10% – 30%

For these loans, additional collateral is not typically required. The assets being purchased act as the collateral. All owners of 20% or more of the business are required to sign personal guarantees to receive this loan.

How To Apply For An SBA Loan

If your business needs financing and you meet the requirements of the SBA, you can apply for an SBA loan. The steps that you take next are determined by the type of loan you select.

To apply for an SBA 7(a) loan, the first step is to find an intermediary lender. You can do this through the SBA’s Lender Match service, which connects you with a lender in your area. You can also get referrals through your existing financial institution.

If you’re applying for an SBA Microloan, you’ll need to find a nonprofit lender in your area. If you’re applying for an SBA CDC/504 loan, you will need to find a CDC that is licensed with the SBA, as well as a private lender that will loan money to cover 50% of your project costs.

Once you’ve found a lender, you’ll fill out an application for the loan of your choosing. In addition to providing details about your business, you may also be required to provide a breakdown of ownership, a summary of how loan proceeds will be used, and details surrounding how you plan to pay back your loan.

Documentation will also be submitted with your application. This documentation will be used to determine if your business qualifies for funding. While requirements may vary by lender, expect to present the following items:

  • Business & Personal Credit Scores/Reports
  • Business Licenses
  • Articles Of Incorporation
  • Business & Personal Income Tax Returns
  • Cash Flow Statement
  • Balance Sheet
  • Profit & Loss Statement
  • Business Plan
  • Financial Projections

Depending on the loan product you select, additional documentation may be required. For example, a letter of intent from a private lender is needed when applying for an SBA CDC/504 loan.

As you move through the application process, be prepared to provide information on the collateral being used to secure the loan (if required) and all owners should be ready to sign a personal guarantee.

Once all documentation and information are gathered, the lender will evaluate your application, taking into consideration factors including credit score, credit history, time in business, and your ability to repay the loan. Don’t be surprised if the lender has questions or requests more information throughout the process. Make sure that your contact information is up to date and you make yourself available to keep the process moving forward.

The underwriters may take several weeks to review your full loan application. With banks and traditional lenders, you may wait 2 to 3 months (or longer) from the application stage to funding. Some lenders offer expedited services to help you get the money you need fast, so if time is an issue, shop around for intermediary lenders that offer fast approvals and funding, like SmartBiz or Lendio.

SmartBiz

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Through SmartBiz, you can apply to receive anything from $30,000 to $5 million to finance your small business. If you want to expand your business, refinance debt, hire employees, purchase inventory or equipment, launch a marketing campaign, or just have funds to use as working capital, consider applying for SmartBiz’s SBA 7(a) Working Capital and Debt Refinancing Loans.

Qualified borrowers can receive up to $350,000 through this program and can be funded in as quickly as 7 days. To qualify, you must have a minimum credit score of 650, a time in business of at least 2 years, and a credit history free of bankruptcies, foreclosures, charge-offs, and settlements. Your credit report should also be free of defaults on government-backed loans and tax liens.

You can also apply for up to $5 million for a 7(a) Commercial Real Estate Loan through SmartBiz. You must have a credit score of at least 675, a time in business of at least 2 years, and no delinquencies or defaults on government loans. The property being financed with loan proceeds should be at least 51% owner-occupied. You must also show proof of sufficient income to cover your loan payment.

Lendio

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Through Lendio, you can apply for the SBA 7(a) loan, the SBA 504 loan, and the SBA Express loan. Loans are available for $50,000 up to $5 million.

To qualify, you must meet all the requirements for receiving an SBA loan. Documentation can be uploaded securely to Lendio’s platform, and if you encounter any trouble along the way, you can work with your personal funding manager.

The average time for funding SBA loans through Lendio’s platform is 30 to 90 days.

Other Business Resources For Women

As mentioned earlier in this article, the SBA offers more than just loans for women-owned small businesses. One program offered through the SBA is the Women-Owned Small Business Federal Contracting program.

Through this program, women-owned businesses can bid on federal contracts with less competition. Only businesses that are certified WOSBs are eligible to compete for these contracts. To qualify, a business must be a small business as defined by the SBA, be at least 51% owned and controlled by U.S. citizens that are female, and have women in charge of day-to-day operations and long-term decisions.

Women that operate economically disadvantaged businesses can bid on federal contracts with even less competition, provided they meet all requirements of the SBA.

Even though legislation has been leveling the playing field for female entrepreneurs, the Center for Women’s Business Research found that almost half of women business owners don’t seek outside sources of funding for their business. The SBA believes that one reason women may not seek financing is that they don’t understand the process and may be unsure of who to ask for more information. The SBA has online resources, Women’s Business Centers, and local SBA offices that provide counseling, training, and loan information to women business owners.

There are plenty of other resources for female entrepreneurs outside of the SBA. The National Women’s Business Council offers nearly 200 resources through the Grow Her Business initiative, including accelerators and incubators, business competitions, conferences, crowdfunding, and alternative lender programs.

The National Association of Women Business Owners also provides resources to help empower women business owners. This organization offers training, education, and virtual networking to female entrepreneurs.

Entrepreneurs can also take advantage of many funding opportunities outside of SBA loans. Learn more about grants and small business loans available for women-owned businesses.

Final Thoughts

Women have come a long way in recent years, especially when it comes to entrepreneurship. The great news is that there are plenty of resources available to female entrepreneurs — you simply need to know where to look. By taking advantage of resources like SBA small business loans, you’ll be able to start, build, or grow your business, taking it to new levels you never thought possible.

The post SBA Loans For Women: What You Need To Know appeared first on Merchant Maverick.

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